How to convert pounds to euros: Trading opportunities in the GBP/EUR pair

Understanding the GBP-Euro Currency Pair

The GBP/EUR cross represents one of the most significant currency trading transactions in global markets. When we talk about exchanging pounds for euros, we are specifically referring to the conversion between these two major currencies in the world economy. If the exchange rate is 1.17, it means you will need 1.17 euros to obtain 1 British pound, or vice versa when converting pounds to euros.

This currency pair belongs to the group of minor crosses in forex trading but generates great interest among European and British traders, especially since political events like Brexit dramatically changed the dynamics of these currencies.

Current reference data (02/02):

• Quote: 1.120 €
• Monthly variation: -1.45%
• Quarterly variation: -2.03%
• Annual range: 1.0786 - 1.2190 €

The Impact of Brexit on Exchange Rate Volatility

Before the 2016 referendum, the GBP/EUR cross traded above 1.30€. Since then, the pound has experienced a significant decline, moving mostly between 1.06 and 1.21 euros.

Brexit was the main catalyst for this transformation. Immediately after the referendum result, the British pound suffered its biggest drop in three decades in a single day. Subsequent declines in 2017 and 2019 pushed the pound to historic lows against the euro, hitting bottom in August 2019.

This collapse occurred because financial institutions anticipated greater trade frictions between the UK and its main economic partner. As they sold assets denominated in pounds, demand for the currency plummeted, reducing its relative value.

Macroeconomic Factors Moving GBP/EUR

The economic outlooks of the UK and the Eurozone are crucial to understanding where the exchange rate will go. Key indicators include GDP, inflation, interest rates, employment, and industrial activity.

Central bank policies: The Bank of England and the ECB have converged on strategies of interest rate hikes to combat inflation. If at any point these policies diverge — for example, if one raises rates more aggressively than the other — the GBP/EUR will be directly impacted.

Economic forecasts: The OECD maintains more optimistic projections for the Eurozone than for the UK. Zero growth is expected in the UK for 2023, while the eurozone anticipates moderate expansion.

Geopolitical events: The war between Russia and Ukraine has added complexity to the inflation outlook of both regions, directly affecting monetary policy decisions.

Why This Pair Is Attractive to Traders

The GBP/EUR offers interesting opportunities due to its liquidity and predictable fluctuations. It is one of the most traded crosses because both currencies are pillars of global financial centers.

Market sentiment plays a decisive role. Since 2016, political uncertainty around UK-EU relations has kept the pair in constant movement, creating opportunities for traders who follow these dynamics.

Strategies for Trading EUR/GBP via CFD

If you want to trade this pair without physically owning the currencies, contracts for difference (CFD) are the ideal instrument. These derivatives allow speculation on the future direction of the exchange rate without holding cash in pounds or euros.

Basic principle: If you believe the pound will rise against the euro, you will open a long position (long). If you anticipate a decline, you will open a short position (short). Profit or loss is calculated as the difference between your entry price and your exit price.

Operational Recommendations

Trading timing: The most volatile hours for the EUR/GBP pair coincide with the European forex session (08:00 - 17:00 local London time), when 35% of the daily volume is concentrated. It is advisable to avoid trading during London nighttime.

News monitoring: Stay alert to economic calendars of both regions. Announcements from the Bank of England regarding interest rates, employment data, and inflation figures are especially impactful.

Technical analysis: Study the current trends of the pair. Chart analysis tools and technical indicators will help you identify more precise entry and exit points.

Volatility consideration: Although GBP/EUR generally shows moderate fluctuations compared to other pairs, high volatility can create valuable opportunities if you know how to leverage it.

Historical Exchange Rate Context

The pair’s all-time high reached 1.752€ in May 2000, while the low was 1.02€ in December 2008 during the global financial crisis. These historical extremes have limited utility for current decisions but provide perspective on extraordinary ranges.

In 2022, the pair started the year near high levels but has fallen toward the lower ends of the five-year range. This trajectory reflects the combination of political, economic, and monetary pressures weighing on both currencies.

Current Outlook and Final Considerations

In early December 2022, the pound was the best-performing currency among its peers but experienced declines before the year’s end. By mid-January 2023, the exchange rate had reached 1.124€, levels not seen since September.

The pound has recently stabilized thanks to a light economic calendar, but upcoming movements will depend on inflation expectations prior to Bank of England announcements. The more cautious approach of this central bank has pressured the currency, although stronger employment indicators could reverse this trend.

It is anticipated that the UK economy will face recession over the next five quarters, with a weak recovery expected in 2024. Meanwhile, inflation could reach 11% during that period. These macroeconomic factors will continue to be decisive for any trader looking to strategically exchange pounds for euros.

Trading EUR/GBP requires discipline, constant monitoring of economic news, and a clear understanding of the factors driving this currency. Only invest what you can afford to lose, as with any financial derivative instrument.