Libra to Euro: Trading Opportunities on the GBP/EUR Pair

▶ Understanding the GBP-EUR Currency Pair

The GBP/EUR cross reflects the quote of the British pound against the euro. This indicator is essential for those needing to convert pounds to euros and represents one of the most dynamic minor pairs in the Forex market. When we see the price reach 1.17, it means 1.17 euros are required to buy one British pound.

Interest in this instrument is particularly high among British and European traders, a phenomenon that intensified after the 2016 referendum. As of February 2nd, the pound to euro was trading at €1.120, recording a depreciation of 1.45% in the last month and 2.03% over the past three months.

Historical data reveal a 52-week range between 1.0786 and 1.2190. Extending the time horizon, the all-time high was set at 1.752€ in May 2000, while the lowest point touched 1.02€ in December 2008.

▶ Brexit: A Key Factor in Volatility

Before the vote on the UK’s exit, the GBP/EUR was consistently above 1.30€. Since 2016, the behavior changed significantly. The British currency has fluctuated mainly between 1.06 and 1.21 euros, compressed into a considerably narrower range.

The day immediately after the referendum marked a negative milestone: the British pound experienced its largest drop in three decades. This movement originated from massive selling of assets denominated in pounds by financial institutions, who anticipated trade frictions between the UK and its main European partner.

During 2017 and 2019, two additional sustained declines were recorded, bringing the GBP/EUR to historic lows in August 2019. Persistent political uncertainty and unstable trade negotiations prolonged downward pressure on the British currency.

In 2022, the behavior was mixed: the exchange rate started near the upper end of its five-year range but has since gravitated toward the lower end since summer. This implies unfavorable conditions for those wishing to buy euros with pounds, as a lower quote requires fewer euros per pound.

▶ Macroeconomic Factors Moving the Pair

Both the British pound and the euro emanate from the world’s leading financial centers. Economic metrics—GDP, inflation, interest rates, manufacturing activity, and unemployment—drive exchange rate fluctuations by altering the attractiveness of each economy for investors.

Market sentiment is a critical factor. Concerns about the impact of the Russia-Ukraine war on UK and eurozone inflation have recently influenced the direction of the exchange rate. Simultaneously, monetary policies of the Bank of England and the European Central Bank (ECB) are currently converging on a restrictive approach.

Both central banks have raised interest rates, but if this synchronization breaks—e.g., if the Bank of England accelerates hikes while the ECB slows down—the EUR/GBP price would undergo significant adjustments.

Regarding economic outlooks, OECD has downgraded the UK’s growth projections for 2022, expecting zero growth in 2023. For the eurozone, modest growth is anticipated. Relative to each other, the economic outlook appears slightly more favorable for the EU than for the UK, potentially pressuring the GBP/EUR lower.

▶ Liquidity and Volatility of the GBP/EUR Cross

The GBP/EUR pair exhibits high liquidity, while its inverse EUR/GBP has lower liquidity. This asymmetry affects spread widths: the greater the liquidity difference, the wider the price deviations during volatility episodes.

The low fluctuation characteristic of GBP/EUR contrasts with the overall high volatility of the currency market. This occurs because both currencies represent developed economies with relative stability. The euro circulates in EU countries, while the pound is the official currency of the UK, reducing abrupt disruptions that could destabilize interconnected economies.

However, significant variations in this cross serve as warning signals, indicating substantial changes in the economic or political dynamics of both jurisdictions.

▶ Trading Strategies for the Pound to Euro Pair

Synchronization: The Importance of Trading Hours

The Forex market operates 24 hours, five days a week. However, for the GBP/EUR cross, it is recommended to trade during the European session, specifically between 08:00 and 17:00 London (local time). This period accounts for approximately 35% of daily Forex trading volume, coinciding with maximum volatility and opportunities.

A simple mnemonic rule is: don’t trade when it’s nighttime in London.

Economic Calendar Monitoring

Any trader dealing with currency pairs must keep an eye on economic calendars and news from both jurisdictions. For GBP/EUR, monitoring announcements from the Bank of England, employment data, inflation, and UK economic activity indicators is essential. Simultaneously, attention should be paid to ECB releases and eurozone statistics.

Unexpected events or significant deviations from forecasts can trigger abrupt movements in the exchange rate.

Trend Analysis

Using technical analysis tools helps identify prevailing trends. Studying historical valuation and trend indicators are proven methods to anticipate the future direction of the pair.

Traders should assess whether bullish, bearish, or sideways trends dominate before opening positions, optimizing their risk-reward ratio.

▶ Trading with Contracts for Difference

CFDs (Contracts for Difference) allow speculation on the future direction of the exchange rate without owning the currencies physically. This instrument has gained popularity among professional and independent investors worldwide.

To trade a CFD on GBP/EUR, it is necessary to open a speculative position based on personal outlooks on future movement. If you anticipate the pound will appreciate (long position), profit is realized when the final price exceeds the entry price. Conversely, if you expect depreciation (short position), profit occurs when the final price is below the initial price.

Profit or loss is calculated as the difference between the closing and opening prices, multiplied by the position size.

▶ Current Exchange Rate Context

In mid-January 2023, the pound had fallen to €1.124, its lowest level against the euro since September. During 2022, the quote range oscillated between €1.08 and €1.21. The pound showed initial strength in December but reversed gains immediately before the Christmas holidays.

Recent stabilization of GBP/EUR is partly due to a light economic calendar, although inflation forecasts and Bank of England rate announcements maintain potential volatility. The more cautious stance adopted by the UK central bank has exerted downward pressure on the currency, contrasting with relatively resilient employment figures that suggest an upside risk balance for the GBP/EUR pair.

▶ Medium-Term Outlook

The UK economy is expected to face recession over the next five quarters, followed by a sluggish recovery in 2024. By then, inflation could reach 11%, pressuring monetary policies and exchange rate dynamics. This combination of economic stagnation and high inflation (stagflation) presents a challenging scenario for the pound.

Market sentiment will continue to be decisive. Since the Brexit referendum in 2016, the British pound has remained under fundamental pressure due to uncertainty over trade negotiations with the European Union. As long as this cloud of uncertainty persists, the GBP/EUR will face limitations in its appreciation potential.

▶ Conclusion: Opportunities in the GBP/EUR Cross

The pound to euro exchange rate is among the most observed and traded in the currency market. Its importance in international trading, combined with moderate but predictable volatility, creates opportunities for traders who understand its underlying dynamics.

Success in trading this pair requires constant attention to economic news, synchronization of trades during high-liquidity hours, and disciplined technical analysis. Remember that currency trading is a high-risk activity: only invest capital you are willing to lose entirely.