Strategy to Take Advantage of the GBP to EUR Shift in the Forex Market

The GBP/EUR exchange rate is one of the most dynamic currency pairs for traders seeking profitability in the forex markets. This cross, identified as GBP/EUR, reflects the value relationship between two of the world’s main currencies: the British pound sterling and the euro of the Eurozone.

As of February 02, the exchange rate was at €1.120, with significant short-term variations: -1.45% over one month and -2.03% over three months. In the last 52 weeks, the trading range has been from 1.0786 to 1.2190. To better contextualize the scale of movement, the all-time high reached 1.752 € in May 2000, while the low was recorded at 1.02 € in December 2008.

Why Is the GBP to Euro Exchange Rate Interesting to Traders?

Currency trading presents a significant opportunity to make online profits. The GBP/EUR pair is particularly attractive due to its liquidity and the movements it generates. However, it is essential to remember that there are no performance guarantees; only invest what you can afford to lose, as forex trading involves substantial risks.

Traders across Europe, especially British and European, constantly monitor this pair. Its moderate volatility combined with predictable movements under certain economic scenarios makes it a profitable instrument for short- and long-term speculation.

Impact of Brexit on the Evolution of GBP/EUR

The recent history of the GBP to euro exchange rate is inextricably marked by the 2016 Brexit referendum. Before that date, the pound traded above €1.30 against the euro. Since then, the landscape changed radically.

The British pound experienced its biggest drop in 30 years immediately after the referendum result. The years 2017 and 2019 brought two additional substantial declines, pushing the pound to new lows against the euro in August 2019. This collapse was due to expectations of increased trade friction, rising political uncertainty, and the massive sale of pound-denominated assets by financial institutions.

In 2022, the exchange rate started near the upper end of the five-year trading range (around 1.21 €), but since summer, it has fallen to lower levels. Currently, the pound remains between 1.06 and 1.21 euros most of the time, reflecting a new post-Brexit normal.

Economic Factors Determining GBP/EUR Movement

Macroeconomic indicators are fundamental drivers of the GBP to euro change. GDP, inflation, interest rates, manufacturing performance, the service sector, and unemployment directly influence currency markets by affecting each country’s attractiveness to investors and, consequently, the demand for its currency.

Market sentiment plays a decisive role. Persistent uncertainty over trade negotiations between the UK and the EU continues to impact the pound’s value. Recently, concerns about inflation caused by the Russia-Ukraine war have significantly influenced the direction of the exchange rate for both regions.

Liquidity is another critical factor. The GBP/EUR is highly liquid, while its inverse (EUR/GBP) is less so. When liquidity varies between the two, deviations increase during volatile periods, affecting the pair’s price range.

Monetary Policies: Bank of England vs. European Central Bank

Both the Bank of England and the European Central Bank have recently implemented converging strategies. Both have raised interest rates in response to inflationary pressures. However, any divergence in their decisions would significantly impact the GBP to euro exchange rate.

Economic outlooks diverge slightly between regions. Recent forecasts show that UK growth has been downgraded, with expectations of zero growth in 2023. For the Eurozone, growth projections are marginally better, suggesting a slightly more favorable outlook for the euro than for the pound in the short term.

It is anticipated that the UK economy will face recession over the next five quarters, with an anemic recovery projected for 2024. Inflation could reach 11% before that date, exerting additional pressure on the pound.

Trading GBP/EUR: Fundamental Concepts

For those ready to trade the GBP to euro, Contract for Difference (CFD) offers an alternative without needing to hold the currencies physically. This instrument allows speculation on the future direction of the price through speculative positions.

The concept is simple: if you expect the price to rise, open a long position. If your final position is higher than the initial, you profit. If you expect a fall, open a short position. Profit or loss is calculated as the difference between both orders.

In the GBP/EUR pair, the British pound is the base currency and the euro is the quote currency. Essentially, you are watching how many euros are needed to buy one pound at a given moment.

Practical Recommendations for Trading This Pair

Monitor moderate volatility: Although GBP/EUR shows lower fluctuations compared to other pairs, volatility in this segment can offer valuable opportunities. The relative stability between both currencies prevents drastic disruptions that could destabilize economies, but significant changes act as important warning signals.

Follow economic news: Staying updated on economic announcements from both regions is essential. Data on employment, inflation, central bank decisions, and political developments can trigger sudden movements in the exchange rate.

Operational timing: Although forex operates 24/5, the best time to trade GBP/EUR is during the European session, specifically London trading hours (08:00-17:00 local time). This period accounts for 35% of daily forex volume, ensuring greater volatility and liquidity.

Trend analysis: Using technical analysis tools is fundamental. Studying valuation patterns and trend signals helps identify more precise entry and exit opportunities, increasing profitability chances.

Current Outlook and Final Considerations

The pound has stabilized relatively against the euro in this cycle, driven by a light economic calendar. However, markets remain attentive to inflation expectations ahead of Bank of England rate announcements.

The more cautious stance of the Bank of England has exerted pressure on the currency, although favorable employment figures could shift the risk balance upward for GBP/EUR. Market sentiment will continue to be decisive in the pair’s trajectory.

If you seek to capitalize on valuation changes of this key cross, the key lies in staying informed about economic trends, understanding the historical cycles of GBP/EUR, and executing disciplined strategies within controlled risk frameworks. The opportunity exists for prepared traders who understand both macroeconomic fundamentals and the technical dynamics of this vital currency market.