GBP/EUR: Opportunities in the GBP/EUR exchange for current traders

Current Outlook of the GBP/EUR Exchange Rate

The GBP/EUR currency pair remains one of the most watched in international markets, especially following the movements that have characterized recent years. In early 2023, the GBP/EUR exchange rate was around €1.120, marking a -1.45% decrease in the last month and -2.03% over the past three months. To understand why this pair is so interesting today, it is necessary to analyze both its historical context and the factors driving its fluctuations.

Essentially, when we talk about the GBP/EUR exchange rate, we refer to the rate indicating how many euros are needed to obtain one British pound. A price of 1.17 means that 1 £ equals 1.17 €. As a minor but highly liquid currency pair, GBP/EUR has attracted the attention of European and British traders since political decisions like Brexit began to significantly impact these currencies.

History: How We Got Here

To understand the current quotation, it is crucial to review how the GBP/EUR exchange rate has evolved over the past decades. Before the Brexit referendum in 2016, this pair traded above 1.30 €. After that event, the pound experienced its largest drop in thirty years in a single day, marking a turning point in the pair’s history.

Since then, the British currency has mostly remained in the range of 1.06 to 1.21 euros. The 52-week historical range reflects this reality: 1.0786 - 1.2190 €. Looking at broader periods, the pair’s all-time high was €1.752 in May 2000, while the lowest was recorded in December 2008 at €1.02, coinciding with the global financial crisis.

Throughout 2017 and 2019, the pound experienced two additional substantial declines. Uncertainty over trade negotiations between the UK and the European Union led institutional investors to sell assets in pounds, reducing its relative value against the euro. In 2022, the rate started near the upper end of the range but migrated downward since summer.

What Really Moves the GBP/EUR?

Several factors converge to determine the direction of this currency pair. Macroeconomic indicators such as GDP, inflation, interest rates, and unemployment play a decisive role. Both regions — the UK and the Eurozone — represent major financial centers worldwide, so their economic data have global repercussions.

Brexit remains the factor with the greatest potential impact. Although the referendum occurred in 2016, its effects continue to reverberate in the markets. Concerns over trade frictions, political stability, and regulatory uncertainty have kept the pound under pressure.

Recently, the war between Russia and Ukraine has added a new layer of complexity. Its impact on inflation in both the UK and the Eurozone has directly influenced monetary policy decisions. The Bank of England and the ECB have adopted tightening stances, though with different paces and magnitudes.

Economic outlooks also diverge. According to projections from international organizations, the UK faces limited growth with recession risks in upcoming quarters. The Eurozone, on the other hand, shows somewhat more favorable but moderate prospects. This relative economic gap influences the attractiveness of both currencies for investors.

Monetary Policy: Bank of England vs. ECB

Both the Bank of England and the European Central Bank have raised interest rates in response to persistent inflation. However, the timing and magnitude of these decisions may not be identical.

If the Bank of England accelerates its tightening while the ECB remains more cautious (or vice versa), this would amplify the rate differentials between the two economies, directly affecting the GBP/EUR exchange rate. Currency traders watch these monetary policy decisions very closely.

The recent more cautious approach by the Bank of England has been a limiting factor for the pound at various times, although stronger employment data could suggest a future recovery.

How to Trade the GBP/EUR with CFDs

For those interested in trading this pair without physically holding euros or pounds, Contracts for Difference (CFDs) offer a viable alternative. With CFDs, traders speculate on the future direction of the GBP/EUR price without needing to take possession of the currencies.

The concept is straightforward: if you believe the pound will strengthen against the euro, open a long position. If you anticipate a weakening, open a short position. Profit or loss is calculated based on the difference between the entry and exit prices.

Practical Strategies for Traders

Follow the economic calendar

Any forex trader should stay informed about economic announcements from both economies. Interest rate decisions, inflation data, employment figures, and statements from the Bank of England or the ECB can trigger significant movements.

Trade during high liquidity hours

The GBP/EUR pair is more volatile during the European session, specifically during London trading hours (08:00 - 17:00 local time), when it accounts for approximately 35% of daily Forex volume. Trading outside these hours may result in wider spreads and less predictable movements.

Consider current volatility

Although GBP/EUR has historically shown moderate fluctuations compared to other pairs, current volatility remains exploitable. Both currencies are highly important in international trade, which generally stabilizes the pair, but geopolitical and economic events can create opportunities.

Analyze technical trends

Using valuation analysis and technical trend indicators is essential to identify buy or sell opportunities. Current market biases should be carefully analyzed before executing trades.

Future Outlook

The GBP/EUR exchange rate continues to be an interesting playground for traders. It is expected that the pound will maintain a level of stabilization in the short term, although inflation expectations and upcoming rate announcements could alter this outlook.

The UK economy faces more immediate challenges than the Eurozone, with recession projections in the coming quarters. This could keep the pound under relative pressure, although employment recovery signals resilience.

Market sentiment will remain crucial. As long as the Brexit narrative continues to generate uncertainty, and global inflation concerns persist, the GBP/EUR exchange rate will maintain its volatile nature and present opportunities for attentive traders.

Risk note: Trading currencies involves significant risk. There are no guarantees of profits, and only capital that can be affordably lost should be invested. The Forex market is dynamic and requires ongoing education and disciplined risk management.