Trading Opportunities in GBP/EUR Cross: A Practical Guide for Traders

▶ Understanding the GBP/EUR Currency Pair

When we talk about the exchange rate between the British Pound and the Euro, we refer to how many euros you need to obtain one pound. If it quotes at 1.17, it means one pound is worth 1.17 euros. This currency pair is part of the minor crosses group, although it maintains significant relevance for European traders.

The ability to move from pounds to euros is fundamental in the forex market, especially considering it accounts for daily transactions worth billions of dollars. The trading volume is robust, creating consistent opportunities for those who understand its patterns.

Market Snapshot (February 2023):

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

▶ Historical Evolution of GBP/EUR

To determine if the current price is competitive, we need to examine how this cross has fluctuated over time.

The Impact of Brexit (2016 onwards)

Before the referendum, the pound consistently traded above 1.30€. Since then, it has remained within a narrower range, fluctuating between 1.06 and 1.21 euros. The Brexit vote resulted in the steepest decline of the pound in three decades. Subsequent turbulence in 2017 and 2019 pushed the currency to new lows against the euro.

This depreciation was mainly due to three factors: expectations of increased UK-EU trade friction, persistent political uncertainty, and institutional instability. As traders liquidated positions in pounds, the currency’s value was significantly compressed.

Recent Context (2022-2023)

Last year started in the upper part of the historical quote range but fell to lows not seen since summer. Unlike previous periods where the pound maintained higher quotes, current levels reflect a different reality. Trying to predict a return to old rates makes little operational sense; it is better to analyze behavior within relevant timeframes for current decision-making.

▶ Factors Moving the GBP/EUR

Macroeconomic Variables

Both currencies represent top-tier global financial centers. Indicators such as GDP, inflation, employment, manufacturing activity, and interest rates drive movements. These data directly affect the attractiveness for investors and, consequently, the demand for each currency.

Market Sentiment and Brexit

Uncertainty about trade negotiations between the UK and the European Union remains a key catalyst. Since 2016, perceptions of this relationship have caused recurrent volatility.

Recent Geopolitical Impacts

International conflicts, such as the war in Eastern Europe, have influenced inflation expectations in both regions, significantly altering price directions.

Liquidity and Spreads

The GBP/EUR pair is highly liquid, while EUR/GBP is less so. This asymmetry means that during periods of high volatility, spreads widen, affecting operational profitability.

▶ Compared Monetary Policies

The Bank of England and the European Central Bank currently hold similar stances, raising interest rates in response to inflationary pressures. However, any future divergence in their strategies could significantly move the pair.

Economic Projections

Organizations like the OECD have revised outlooks for both economies:

• United Kingdom: Growth revised downward, with a recession projected and weak recovery in 2024
• Eurozone: Improved projections for 2022-2023, though facing similar inflation challenges

Globally, European prospects seem marginally more favorable than British ones.

▶ Why Traders Are Interested in GBP/EUR

The currency market offers profitable opportunities, and this cross in particular has attractive features: high liquidity, manageable volatility, and clear fundamental movements.

Risk Warning: There are no guarantees of profits in forex. Trade only with capital you can afford to lose. Forex trading involves significant risks.

▶ CFD Trading on the GBP/EUR Cross

Contracts for difference allow speculation on GBP/EUR without physically owning the currencies. With these instruments, you express your view on the future direction of the price in the short or long term.

Operational Mechanics:

• For long positions (long): your final price must exceed the initial price
• For short positions (short): your final price must be below the initial
• Profit/loss is the difference between both levels

CFDs have become popular among international traders precisely because of this flexibility.

▶ Practical Strategies for Trading GBP/EUR

Understanding the Pair Mechanics

When trading from pounds to euros, you must visualize that the pound is the base currency and the euro is the quote currency. In other words, you see how many euros you need to invest to buy pounds at any given moment.

Managing Volatility

Although GBP/EUR has historically shown moderate fluctuations, periods of high volatility can create opportunities. Both currencies are fundamental in global trade (euro in the EU, pound in the UK), which limits drastic changes but allows tactical operations.

Monitoring Economic Calendar

It is critical to follow economic reports from both regions to avoid surprises from sudden movements. Events such as Bank of England rate announcements, employment data, or inflation reports can generate significant volatility.

Trading During Optimal Hours

Although forex operates 24/5, the pair shows higher activity during the London session (08:00-17:00 local time), which accounts for approximately 35% of daily currency volume. These hours offer more favorable conditions for executing orders.

Trend Analysis

Before entering a position, use technical analysis to identify ongoing tendencies. Trend-following tools will help align your trades with the dominant market direction.

▶ Final Reflections

The pound-euro cross is among the most traded and monitored pairs in the forex market. To achieve consistent results, stay updated on economic trends, monetary policy statements, and geopolitical events.

The pound has shown relative stability against the euro in the context of a light economic calendar. However, we anticipate that inflation expectations data will become important soon, coinciding with Bank of England rate announcements.

The more cautious stance of this institution has exerted downward pressure, although recent employment indicators could signal a shift to an upward trend for GBP/EUR.

Market sentiment remains decisive. Post-Brexit, the pound has been subject to uncertainty regarding UK-EU trade relations. Economic projections suggest a weak British economy in the coming quarters, with a possible recession and limited recovery into 2024, potentially with double-digit inflation before then.

● Current Comparison: Which Currency Is Worth More?

During 2022, the pound fluctuated between 1.08€ and 1.21€. It performed best in early December but lost pre-Christmas gains. By mid-January 2023, it had fallen to its lowest level against the euro since September, trading at 1.124€.