GBP/EUR: Between volatility and exchange opportunities from pound to euro

The GBP/EUR currency pair remains one of the most watched in the international forex market. Currently trading near 1.120 €, after experiencing declines of -1.45% in the last month and -2.03% over the past three months. But what is really behind these movements? The answer requires looking beyond the numbers and understanding the forces shaping the pound-to-euro exchange rate.

The context of the pound: seven years after Brexit

To understand where we are today, it’s necessary to go back. Before June 2016, the GBP/EUR exchange rate comfortably hovered above 1.30€. After the Brexit referendum, everything changed. The pound experienced its biggest drop in three decades within hours. Since then, the British currency has mostly moved between 1.06 and 1.21 euros.

What happened was straightforward: when the UK voted to leave the European Union, international traders began massively selling assets in British pounds. Financial institutions anticipated trade frictions, political uncertainty, and lower economic attractiveness. Each additional sale further depressed the currency’s value. In 2017 and 2019, new declines pushed the pound to new lows against the euro.

The data is revealing: compared to 10 or 15 years ago, the pound is at considerably weaker levels. However, expecting the currency to return to those historic highs of 1.752€ (May 2000) is probably a futile exercise. Markets change, and expectations must be adjusted to current reality.

What truly moves the pound to euro exchange rate?

The GBP/EUR pair doesn’t float in a vacuum. Its direction depends on multiple simultaneous forces:

Fundamental macroeconomic factors: Numbers tell the story. GDP, inflation, unemployment rates, and industrial activity determine the attractiveness of investing in pounds or euros. If one economy grows faster than the other, its currency tends to appreciate.

Central bank policies: The Bank of England and the European Central Bank have recently been in sync in their interest rate hike cycles. But if one accelerates and the other slows down, the market notices immediately. Divergence in interest rates can significantly move the exchange rate.

Market sentiment and geopolitical events: The war between Russia and Ukraine has impacted inflation in both regions. Concerns about recession in the UK versus relative stability in the eurozone have weighed on the pound.

The current economic outlook

Recent projections suggest a mixed scenario. The UK economy is expected to grow zero percent in 2023, with a recession forecast for the coming quarters. In contrast, the eurozone shows modest expected growth. Inflation could reach 11% in the UK by 2024, while the Eurozone faces less severe inflationary pressures.

These fundamental data favor continued pressure on the pound. It’s no surprise that the pound-to-euro exchange rate has fallen from recent highs of 1.2190€ toward lower levels, approaching the bottom of the range at 1.0786€.

Liquidity and volatility: two sides of the same coin

The GBP/EUR is extremely liquid. In contrast, its inverse EUR/GBP is much less so. This creates an interesting dynamic: when volatility rises, the bid-ask spread widens, affecting the price at which traders can enter and exit.

Paradoxically, although this pair has shown relatively low fluctuation compared to other currencies, periods of high volatility offer opportunities. A significant change in the exchange rate would be a red flag for the market, indicating that something fundamental is changing in the underlying economies.

Practical strategy for trading the pound to euro exchange rate

Trading GBP/EUR requires discipline and knowledge. First, remember that you are comparing the British pound (base currency) against the euro (quote currency). If the quote is 1.17, you need 1.17 euros to buy one pound.

Timing is crucial: Although forex markets are open 24/5, the GBP/EUR pair shows higher volatility during London session (08:00-17:00 local time). This window accounts for approximately 35% of daily currency trading volume. Trading outside this window generally means wider spreads and less clear opportunities.

Constant monitoring: You should follow both countries’ economic calendars. Bank of England announcements, inflation data, employment figures—all can trigger sharp movements. The same applies to events in the Eurozone.

Technical analysis and trends: Using trend analysis tools and charts is essential. If there is a clear downtrend, fighting against it is futile. It’s better to trade with the trend than against it.

Risk factor: There are no guarantees of profit in forex. Leverage multiplies both gains and losses. Only invest capital you can afford to lose without affecting your finances.

Future outlook and final considerations

The pound has recently stabilized, though it remains under pressure. Stronger UK employment data could be the first sign that risks are tilted upward for the currency. However, the recent cautious tone from the Bank of England acts as a negative anchor.

The GBP/EUR exchange rate will continue to reflect the battle between two economies with different trajectories. While the UK faces weaker economic prospects and imminent recession, the eurozone shows some relative resilience. This economic differential suggests that pressure on the pound could persist in the short term.

For traders, the lesson is clear: stay informed, respect volatility, operate during liquid windows, and avoid chasing prices. The GBP/EUR pair will continue to offer opportunities for those who understand its underlying dynamics and respect the inherent risks of currency trading.