Cross currency trading is the term used when the dollar is not included in either of the currency pairs that are being traded. A good example of a cross-currency trade, and one of the most popular pairs traded in the forex market is the GBP vs. EURO. Both the euro and the pound are widely used and are actively traded, being in the top three of currencies traded in the foreign exchange market, with the US dollar.
The Base Currency in GBP vs. EURO
The official currency of the UK and several other territories, including Guernsey, the Falkland Islands, Gibraltar, Jersey, and the Isle of Man, the pound sterling is often simply called the pound and is represented by both GBP and the £ symbol. There are 100 pence per pound and coins ranging from 1p to £2 are those in regular use. Frequently used banknotes are the £5, £10, £20, and £50 bills. While the pound has a long and interesting history, its modern-day establishment dates from 1694.
The Counter Currency
The other half of the GBP vs. EURO pair, the euro is the official currency of the European Union. The euro is used in 19 of the 28 EU states, plus many other territories use the euro or are pegged to the coin. As of 2018, some 240 million people around the world use currencies that are fixed to the euro. Divided into 100 cents, the EUR is divided into eight-euro coins from 1c to €2, with banknotes from €5 to €500. Established in 1992, the euro didn’t become a physical currency until 1 January 2002.
The Euro and Pound in Forex
Both the euro and the pound are strong and heavily traded currencies. With the US dollar and the Japanese yen, they are the four most-traded currencies in foreign exchange markets. Even though they are considered stable, they are vulnerable to shifts when the economy changes. Several recessions and political impacts, such as the Brexit vote in 2016, have impacted both the pound and euro.
While this pair is made up of two of the strongest global currencies, the GBP vs. EURO pair does not rank in the top 5 most traded currency pairs, but rather in the top 10. What is interesting about the pair, though, is because they are both such strong currencies, the GBP vs. EURO pair has developed a reputation as having high resistance against volatility in the market. For some traders, this makes the pair an interesting potential hedge against an unstable market, though its stability is not guaranteed.