EUR/GBP is the most recent creation of a pairing between the euro and pound, having been set up in June 1997. Although currency markets are constantly evolving and other pairs have been created in the last 20 years, EUR/GBP remains the premier pairing of the currency pair market today.
EUR/GBP is of particular importance for emerging market traders as it serves as a currency pair to find out the real value of sterling in comparison to other major international currencies. It is used by many traders to determine the true value of the pound to the euro, as you cannot mix EUR/GBP with sterling values that are calculated by a pair-based index (e.g. EUR/USD) or by pegging. For example, EUR/GBP sets the value of the pound to the euro regardless of what EUR/GBP pair(s) are used to calculate them. This is because currencies are valued on the inter-bank basis and that is how they are determined today.
The single currency has fluctuated widely over the years as countries within the eurozone have been given the opportunity to leave the eurozone, but EUR/GBP has remained consistent and has often acted as an important benchmark for emerging market traders to determine currency values. However, the constant fluctuations of the euro in relation to its single currency partner (EUR/GBP) makes it difficult to set meaningful long-term currency pairs for emerging market traders. This is why most emerging markets traders use the USD/USD pair.
Even though the euro is still the most commonly used currency pair by emerging markets traders today, there are some emerging markets currency pairs that emerging markets traders cannot set monetary terms based on, such as USD/KRW or USD/KZF.
Common uses for EUR/GBP
Now that we have established EUR/GBP as a reasonable pair to use as a basis for currency comparisons, we will now look into the most common uses of this pair in markets today.
Including currencies when pricing a foreign exchange transaction.
When considering a foreign exchange transaction in an online trading platform, currency pairs should be included when determining currency rates. This is important because currency fluctuations can be slightly different for each exchange pair. This is especially true for the euro and the British pound. With more than 100 pairs available to use on websites today, it is a challenge to set meaningful currency pair terms for emerging markets traders.