Euro (EUR) is the official currency of the Eurozone, which is used by 19 countries. This determines a high correlation between the euro and the economy of the region as a whole.
Pound Sterling (GBP) is used in England, has the status of one of the most expensive and stable currencies in the world. This is achieved thanks to the high gold supply, which, according to various experts, reaches a value of 40-60%.
The fact that EUR/GBP depends on the economies of Europe and England means that the central banks of these two countries play a very important role. Therefore, traders should be aware of the main events related to monetary policy, both in England and in the eurozone.
For example, the ECB holds meetings every month, on the first Thursday of every month, except January, in connection with public holidays. After each of these meetings, a press conference takes place 45 minutes later, at which the President of the ECB reads out the Governing Council’s statement and also receives several questions from the press.
The euro/pound pair is very responsive to the results of the press conference. Volatility can be even higher than after the announcement of interest rate data. However, this moment also has a strong impact on EUR/GBP.
On the same day that the ECB publishes its decision on the interest rate, the Bank of England establishes a monetary policy 45 minutes before the publication of the ECB decision on the interest rate.
The Bank of England does not have a press conference after the publication of the decision. Therefore, traders need to independently monitor the data. The one who first learns the decision will be able to make good money on the pair.
How to trade
In addition to the basic factors, it is important for traders to take into account other nuances, for example, the CPI, which reflects the economic stability of the eurozone.
The European Consumer Price Index represents inflation in the EU, and the European Central Bank is dependent on this inflation in determining monetary policy.
Other important European news releases are the index of business activity, the Purchasing Managers’ Index (PMI). PMI shows whether a sector is expanding or contracting. Other news items that traders should pay attention to are GDP, Gross Domestic Product, and unemployment.
Ultimately, economic releases throughout a month help traders make a wise guess about what the ECB will do. For example, if inflation falls below what the ECB is aiming for, it is obvious to expect lower interest rates. This will affect the EUR/GBP currency pair and lead to the strengthening of the pound sterling.
The strength or weakness of the GBP is directly affected by the Bank of England. Its main goal is to maintain inflation at around 2%. To address this issue, the Bank of England has a Monetary Policy Committee (MPC), which meets once a month to assess the country’s economy.
Unlike ECB meetings, IPU meetings are never accompanied by any press conferences, unless interest rates change.
Among the economic news releases that strongly affect GBP and, as a result, EUR/GBP, UK GDP data is significant. Traders should also pay attention to information on retail sales, the Purchasing Managers Index (PMI), which shows the level of inflation.
Since inflation is not a characteristic phenomenon for England, particular attention should be paid to the behavior of the euro. Each ECB meeting gives traders a chance to get a solid margin.