GBP/EUR Conversion Strategy: How to Profit from the GBP-Euro Cross Volatility

The GBP/EUR Pair Explained Simply

When we talk about the exchange rate between the British pound and the euro, we refer to the relative price between these two major European financial market currencies. If the pair is at 1.17, it means you need 1.17 euros to buy one pound. This minor currency pair is especially relevant for traders on both sides of the North Atlantic, particularly since European political movements have deeply impacted their quotes.

Current data of the pair (02/02):

• Close: €1.120
• Monthly change: -1.45%
• Quarterly change: -2.03%
• 52-week high: €1.2190
• 52-week low: €1.0786

Historical Evolution: Understanding Where We Are Today

To assess whether the current quote is attractive, it’s helpful to look back. Before 2016, the GBP-EUR pair hovered around 1.30€. However, over the past few years, it has mainly fluctuated between 1.06 and 1.21 euros, a considerably narrower range.

Decisive milestone: the 2016 referendum

That event marked a turning point. The pound experienced its worst day in three decades immediately afterward. Financial institutions began massively selling assets denominated in pounds, accelerating the currency’s decline. The new lows were reached in August 2019, when the pound hit its lowest levels against the euro in years.

This phenomenon responded to expectations of trade frictions, persistent political uncertainty, and unstable negotiations. As more sellers exited pound positions, downward pressure intensified.

Recent performance (2022-2023)

2022 started at the top of the historical range but since mid-year, it declined toward the lower extremes. For those wishing to convert pounds to euros in unfavorable contexts, these periods represent expensive buying moments, not opportunities.

By mid-January 2023, the pound reached its lowest level against the euro since September, at 1.124€. This deterioration continued to reflect concerns about UK economic growth.

Factors Moving the GBP/EUR Pair

Macroeconomic indicators act as market engines: GDP, inflation, interest rates, unemployment, and industrial activity determine each economy’s attractiveness to investors and, consequently, the demand for its currency.

The weight of market sentiment

Beyond numbers, collective perception moves prices. Trade wars, geopolitical conflicts (like the Russia-Ukraine war), and changes in inflation expectations can drastically alter the pair’s direction.

Divergent monetary policy

Currently, the Bank of England and the European Central Bank have raised interest rates in a coordinated manner. However, if this parallelism breaks—say, the UK accelerates hikes while the ECB moderates—the impact on EUR/GBP would be immediate and potentially significant.

Contradictory economic outlooks

OECD projections show the UK with zero growth in 2023, while the eurozone maintains slightly more optimistic forecasts. This economic disparity naturally pressures the pound.

Liquidity and Volatility: Operational Factors

The GBP/EUR pair is highly liquid, facilitating quick entries and exits. The (spread) widens when volatility intensifies. Monitoring these spreads is essential to calculate actual trading costs.

Practical Recommendations for Trading EUR/GBP

Trade during strategic hours

The pair shows higher volatility during London session (08:00-17:00 local time), when 35% of daily Forex volume occurs. Avoid trading during early local mornings if seeking profitable moves.

Follow the economic calendar

Any serious trader should subscribe to alerts for UK and eurozone economic indicators: rate changes, employment data, inflation. The pair reacts violently to surprises.

Consider low volatility in context

Although GBP/EUR experiences smaller fluctuations compared to other pairs, this doesn’t mean opportunities are absent. Low volatility can suddenly turn high due to unexpected events. A sharp move in this pair is always a warning sign.

Technical trend analysis

Before opening positions, identify the trend using technical analysis tools. Is the pair rising or falling? What support and resistance levels are key? This information guides entry and exit decisions.

Difference Between Direct Trading and CFD

If you want exposure to EUR/GBP movement without physically holding the currencies, contracts for difference (CFD) allow you to speculate on future prices without ownership. It’s more accessible but also carries higher risks. Only invest capital you can afford to lose entirely.

Key CFD concept: if you believe the pound will strengthen against the euro, open a long position; if you expect the opposite, a short position. Profit is the difference between close and open.

Summary: GBP-Euro Pair Outlook

The pound has recently stabilized against the euro, although inflation expectations will remain key before Bank of England announcements. The UK’s more cautious stance has acted as a drag, though positive employment reports could signal future optimism.

Market sentiment continues to dominate. Since 2016, uncertainty over post-referendum trade negotiations has set the pace. Current projections suggest a UK recession in the coming quarters, with sluggish recovery in 2024 and inflation possibly near 11%.

To remember: In early December 2022, the pound experienced its recent best performance but collapsed before year-end. In January 2023, it returned to lows unseen since September. This erratic pattern reinforces the need for discipline, constant analysis, and rigorous risk management when trading pounds to euros in such dynamic markets.

Currency trading can be profitable, but not for everyone. It requires ongoing education, emotional control, and acceptance that losses are part of the game.