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How to Trade EUR/GBP? Tips & Trading Strategies

Date Modified: 21/04/2024

The EUR/GBP is a Forex currency pair indicating the exchange rate between the Euro (EUR) and the British Pound (GBP). It signifies the amount of GBP required to buy one Euro.

Traders often engage in this pair to speculate on the comparative strength or weakness of the Eurozone and UK currencies. Exchange rate movements are affected by economic data, central bank policies, geopolitical events, and market sentiment among other things.

an illustration of the EUR/GBP forex pair

EUR/GBP Trading Tips

When trading the EUR/GBP, it is important to keep in mind the overall macroeconomic and political conditions that may affect the fluctuations of this important Forex pair’s value. Here are some general factors affecting the EUR/GBP that may be worth keeping an eye on:

Interest Rate Effects

Central bank policies, particularly alterations in interest rates, play a pivotal role in the appreciation or depreciation of currency pairs. Higher interest rates in one country relative to another attract foreign capital, leading to the strengthening of that country's currency.

Conversely, lower interest rates or indications of future decreases can drive investors to other currency pairs with higher returns, negatively impacting the currency with lower interest rates. Over the past several years, central banks across the globe have had to grapple with high rates of inflation, and the European Central Bank (ECB) and Bank of England (BoE) have been no exception. It is important to keep track of potential changes in the policies of these two financial institutions in order to keep abreast of potential shifts in the EUR/GBP.

Overall Economic Trends

Various economic indicators like GDP growth, inflation rates, employment data, and trade balances in both the Eurozone and the United Kingdom wield significant influence over the exchange rate. Positive economic metrics, such as robust GDP growth or low unemployment rates, can favourably affect the currency. For instance, if the Eurozone exhibits stronger economic performance than the UK, the Euro may strengthen against the Pound.

Political Developments

Political events such as elections, referendums, and government stability can influence market sentiment and subsequently impact the exchange rate. Notable political uncertainties, as witnessed during the Brexit negotiations, caused volatility and had adverse effects on the currency.

Market Sentiment

Short-term fluctuations in the EUR/GBP rate can be driven by investor and trader sentiment. News, rumours, and global economic events can induce rapid and sometimes unpredictable movements in the exchange rate. Positive sentiment can result in currency appreciation, while negative sentiment can lead to depreciation, with the impact varying based on perceived market sentiment.

Trade Relations

Trade relationships and agreements between the Eurozone and the UK can positively or negatively affect the exchange rate. Changes in trade policies and disputes between the Eurozone and the United Kingdom play a role. Positive developments in trade relations can positively impact the currency by boosting economic prospects, while trade disputes or negative alterations in trade agreements can have adverse effects.

EUR/GBP Trading Benefits

The EUR/GBP currency pair stands out in the Forex market due to its substantial trade volume and impressive liquidity, usually allowing traders to experience tight spreads and minimal slippage during transactions. This optimal trading environment commonly contributes to a seamless and cost-effective trading experience for market participants.

One noteworthy advantage of the EUR/GBP pair lies in its customarily robust correlation with other major currency pairs. This correlation opens up avenues for implementing effective hedging strategies. Traders can frequently leverage the interconnectedness of the EUR/GBP with other significant currencies to mitigate risks and protect their positions in the market.

The EUR/GBP exchange rate, shaped by dynamic political and economic events among other factors, presents an opportunity for traders to capitalize on news-driven volatility. However, it's important to note that the suitability of EUR/GBP varies among traders. While astute traders can anticipate market movements and potentially profit, the frequently tight bid-ask spreads may not appeal to all, as the reduced trading profits may not outweigh other factors influencing their trading preferences.

In conclusion, the EUR/GBP's substantial trade volume, liquidity, correlation with other major currency pairs, susceptibility to news-driven volatility, and frequently tight bid-ask spreads collectively usually position it as an appealing asset for traders. Depending on each person's trading philosophy, these characteristics can foster a favourable trading environment and offer diverse strategies for traders to explore in their quest for successful and profitable outcomes.

EUR/GBP trading risks

The GBP has experienced heightened volatility following the United Kingdom's exit from the European Union, a development that demands increased attention from traders. The uncertainty surrounding the post-Brexit landscape has led to fluctuating market conditions, creating both challenges and opportunities. Moreover, it is crucial for traders to remain vigilant about potential interest rate adjustments by either the European Central Bank (ECB) or the Bank of England (BOE). Changes in interest rates can significantly impact the exchange rate between the Euro and the British Pound (EUR/GBP), influencing trading strategies and market dynamics.

Furthermore, the EUR/GBP is notably influenced by market sentiment to a greater extent than many other currency pairs. Traders should be attuned to shifts in investor and trader sentiment as they can rapidly drive short-term fluctuations in the exchange rate, requiring a responsive and adaptable approach to navigate the dynamic nature of this currency pair.

Popular Trading Strategies

Two common trading strategies popular on the EUR/GBP market are swing trading and trend trading.

Swing trading focuses on medium-term price swings in EUR/GBP. Traders analyse daily or 4-hour charts, identifying key support and resistance levels. They wait for the price to bounce off a support level before entering a long position or vice versa for resistance levels. Swing traders hold positions for several days to weeks, aiming for larger gains compared to scalpers.

Trend trading in the EUR/GBP market capitalises on longer-term price trends. Traders identify the prevailing trend direction by examining higher timeframe charts like daily, weekly, or monthly. In an uptrend, they initiate long positions, while a downtrend prompts short positions. Trend traders use technical indicators like moving averages to confirm trend direction and often hold positions for weeks or even several months, riding the trend until signs of reversal emerge.

Step-by-Step Guide to EUR/GBP CFD Trading with Plus500

  1. Familiarise yourself with the overall Forex market and the EUR/GBP in particular.

  2. Define your trading strategy and goals.

  3. Keep up-to-date with various economic and political factors that could shift the EUR/GDP market.

  4. Take advantage of Plus500's risk management tools when trading.

  5. Use the Plus500 trading platform to open a position on EUR/GBP CFDs.

  6. Make sure to keep track of your trading outcomes and adjust your strategy if needed.

Conclusion

In conclusion, trading the EUR/GBP currency pair offers a compelling opportunity for market participants, given its substantial trade volume, impressive liquidity, and unique characteristics among other things. The pair's correlation with other major currencies allows for effective hedging strategies, and its susceptibility to news-driven volatility usually presents avenues for astute traders to capitalise on market movements.

The EUR/GBP's dynamic nature, influenced by political, economic, trade-related events and other factors, provides a diverse range of strategies for traders seeking successful and profitable outcomes.

However, it is essential for traders to be mindful of the associated risks such as the continued heightened volatility post-Brexit, as well as potential interest rate adjustments, and the influence of market sentiment. By staying informed and adopting responsive approaches, this can help traders better navigate the complexities of the EUR/GBP market and capitalise on its diverse trading opportunities.

FAQs

What drives the EUR/GBP?

The EUR/GBP is affected by a range of factors, from political issues in the Eurozone and UK to interest rate changes, general market sentiment, and more.

Is scalping a good strategy for trading EUR/GBP?

While scalping can be a suitable strategy for many traders, it is important to note that scalping EUR/GBP CFDs and all other financial instruments we offer is prohibited under the terms of the Plus500 User Agreement.

Is EUR GBP considered volatile?

The EUR/GBP has been considered more volatile since Brexit.

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