GBP/EUR: Seize trading opportunities from Euro-British currency fluctuations

Opportunities Through Numbers

GBP/EUR exchange rate currently fluctuates around 1.12 euros. What does this level mean for traders? Simply put, if you exchange 1 British pound now, you get 1.12 euros. Over the past five years, this rate has oscillated between 1.06 and 1.21 euros, but behind these numbers lie numerous trading opportunities.

The performance over the past year is worth noting: at the beginning of 2022, this currency pair was near 1.21, but by mid-2023 it had fallen to 1.12. Such volatility is not random; it reflects deep economic forces at play.

Why GBP/EUR Is Worth Watching

Why is this currency pair particularly favored by traders? First, it is sufficiently liquid, unlike obscure currency pairs that are hard to trade. Second, it involves two major economies— the Eurozone and the UK— with frequent economic data releases, creating continuous opportunities.

The movement of GBP/EUR exchange rate is driven by multiple factors. Differences in GDP growth rates between the UK and Eurozone, inflation levels, and the monetary policy directions of the Bank of England and the European Central Bank—all directly influence the exchange rate. When the UK raises interest rates while the ECB holds steady, the pound tends to strengthen; the opposite is also true.

Market sentiment has been volatile since the Brexit referendum in 2016. That day, the pound experienced its largest single-day drop in 30 years. Since then, uncertainty has haunted the pound like a ghost, with Brexit negotiations causing fluctuations and declines whenever there are new developments.

What the Historical Trajectory Tells Us

Before Brexit, GBP/EUR was stable above 1.30 euros. After the referendum, the pound began a long-term decline. In 2017 and 2019, it experienced two major drops, pushing it to its lowest levels since August 2019.

Why does this happen? Simply put, markets worry that trade friction between the UK and the EU will intensify. Political uncertainty also plays a role, leading financial institutions to sell off UK assets. The more selling, the more the pound depreciates.

However, past highs are not necessarily relevant now. Two decades ago, the GBP to EUR exchange rate was much higher than today, but those figures are outdated. The real focus should be on the recent 5 to 10-year trading range, which represents the current “normal range” of the market.

Central Bank Policies vs. Economic Data

GBP/EUR exchange rate in 2023 faces the test of central bank decisions. The Bank of England has raised interest rates multiple times and may continue this trend; the ECB is also raising rates but at a different pace.

Regarding economic outlooks, international organizations forecast near-zero growth for the UK in 2023, with a risk of recession, while the Eurozone, though also weak, performs slightly better. This comparison itself has lowered expectations for the pound.

Another hidden factor is inflation pressures stemming from the Russia-Ukraine conflict. Both economies are suffering, but market opinions differ on who can more quickly tame inflation, directly affecting currency performance.

Practical Trading Tips for This Currency Pair

If you want to participate in GBP/EUR fluctuations via CFDs, you need to understand a basic concept: you don’t need to actually hold pounds or euros. Just open positions on your trading platform based on your judgment—go long if you expect the rate to rise, go short if you expect it to fall.

Choosing the right trading session is crucial. The European trading hours (London time 8:00 to 17:00) are the most active for this pair, with the highest volume and the narrowest spreads—your golden window. While Forex can be traded 24/7, operating during European hours offers the best liquidity.

Pay attention to economic calendars. Every week and month, economic data from the UK and Eurozone—such as unemployment rates, manufacturing indices, and central bank decisions—are released. These often trigger rapid GBP/EUR fluctuations. Doing your homework in advance, knowing which data is about to be published, can help you seize opportunities or avoid risks.

Technical analysis is indispensable. While fundamentals are important, trend indicators, support and resistance levels can help you find more precise entry and exit points. Historically, GBP/EUR has repeatedly tested the 1.06 to 1.21 range, with these levels often serving as key support or resistance.

Changes in 2023

By mid-January, GBP/EUR dropped to 1.124 euros, hitting a new low since September. Although the pound performed well at the start of the year, it then weakened.

The Bank of England has recently adopted a more cautious stance, which has weighed on the pound. However, UK employment data remains resilient, possibly signaling an early rebound for the pound.

Overall, GBP/EUR is at a critical juncture. Risks of UK recession, divergence in central bank policies, and Brexit aftermath continue to shape the future of the pound. As a trader, your task is to closely monitor these variables and look for profit opportunities amid volatility. Remember, volatility means opportunity but also risk; always trade with funds you can afford to lose.