Trading GBP/EUR: A Guide to Capitalizing on Pound and Euro Volatility

What is the current state of the GBP/EUR cross?

The GBP/EUR currency pair was trading at €1.120 on February 2nd. This exchange rate indicates how many euros you need to buy one British pound. Historically, the price has fluctuated between €1.0786 and €1.2190 over the past 52 weeks, reflecting the characteristic volatility of this major minor currency pair in the Forex market.

The pound has experienced significant variations in its quotation: it recorded a -1.45% decline in the last month and -2.03% over the past three months. These movements can create excellent trading opportunities for those who know how to read market signals.

Reasons why the GBP/EUR pair is attractive to traders

Currency trading between the pound and the euro is particularly interesting because both represent top-tier global financial and commercial centers. The liquidity of GBP/EUR facilitates entering and exiting positions, a critical factor for any trader seeking operational flexibility.

Macroeconomic indicators such as GDP, inflation, interest rates, and unemployment directly drive the movements of these pairs. Specifically, for GBP/EUR, market sentiment plays a decisive role, especially considering historical background and political uncertainty surrounding the economic relations between the United Kingdom and the European Union.

The impact of Brexit on the GBP-Euro valuation

Before the 2016 referendum, the GBP/EUR cross moved above €1.30. Since then, the situation changed radically. The pound experienced its largest drop in thirty years immediately after the vote, and subsequently faced two additional collapses in 2017 and 2019 that pushed the quotation to new lows against the euro.

This sustained decline was mainly due to financial institutions selling assets denominated in British pounds, anticipating trade frictions and persistent political instability. Since 2016, most of the time, the cross has remained between €1.06 and €1.21, well below pre-Brexit levels.

In 2022, the exchange rate started near the upper end of this range, but since summer, it has fallen toward the lower end. This data is important if you are considering trading: a low rate means it’s not the most favorable time to buy euros with pounds.

Key factors moving the GBP/EUR

Monetary policy is one of the three main pillars impacting the pair’s movement. Both the Bank of England and the European Central Bank (ECB) have recently adopted similar stances, raising interest rates. However, if this synchronization changes and one raises rates while the other remains steady, it would significantly affect the price.

Economic forecasts are also decisive. The OECD has lowered the UK’s growth expectations for 2023 to zero, while expecting modest growth for the Eurozone. This divergence in economic outlooks relatively favors the euro over the pound.

Beyond these technical considerations, geopolitical events such as the Russia-Ukraine war have influenced inflation in both the UK and the Eurozone, affecting the direction of the exchange rate.

Where to exchange euros for pounds more cheaply: Trading via CFD

If you’re looking for where to exchange euros for pounds more cheaply, CFD trading offers an interesting alternative. Through contracts for difference, you don’t need to physically own the currencies. Instead, you open speculative positions based on your analysis of where you believe the price will go.

This instrument allows you to speculate on the future direction of GBP/EUR, whether short or long term, aiming to benefit from the ups and downs of the exchange rate. If you go long, your final position should be higher than the initial; if short, the opposite. Profit results from the contrast between your entry and exit orders.

Fundamental strategies for trading GBP/EUR

Understand the pair’s structure: Remember that in GBP/EUR, the pound is the base currency and the euro is the quote currency. You are observing how many euros are needed to buy one pound at any given moment.

Consider moderate volatility: Although GBP/EUR has shown relatively low fluctuation compared to other pairs, this doesn’t mean there are no opportunities. Moderate volatility makes both currencies attractive in international trade, but it can also generate significant movements when macroeconomic factors change.

Sync with the economic calendar: When trading any currency pair, it’s vital to follow economic news from both regions. Employment data, inflation, and monetary policy decisions can cause important price changes.

Choose the right time: The best time to trade GBP/EUR is during the European Forex session, specifically London trading hours (08:00 - 17:00 local time). This period accounts for 35% of daily Forex transactions and coincides with the highest volatility of the pair.

Analyze technical trends: Use historical price analysis or technical trend indicators. Looking back more than ten years has limited value; it’s more useful to focus on recent years, which remain relevant in the current context.

Future outlook for GBP/EUR

The UK economy is expected to enter a recession over the next five quarters, although a sluggish recovery is anticipated in 2024. Inflation could reach 11% by then. Meanwhile, the stabilization of the pound against the euro will depend on upcoming economic events, especially inflation expectations before the Bank of England’s rate announcements.

Market sentiment will continue to be crucial. Although the cautious approach recently adopted by the Bank of England has pressured the currency, positive employment data could indicate that the risk is beginning to tilt upward for GBP/EUR.

In conclusion

The GBP/EUR exchange rate is among the most traded and watched in the sector. This cross offers attractive trading opportunities for those who understand its historical dynamics, macroeconomic factors, and technical patterns. The key is to stay updated with economic trends, respect peak liquidity hours, and use reliable analysis tools to make informed decisions in your trading.