The EUR/GBP forex pair is one of the most popular and widely traded for volume and stability. Both technical and fundamental analysis is essential if you are interested in trading the EUR/GBP pair in the global foreign exchange market. Market forecasts for currencies are necessary to help traders plan their trades and maximize opportunities. Here, you’ll learn the history of the EUR/GBP pair, the economies driving it, and what factors impact the price. You’ll also learn forecasts for the next three years.
The EUR/GBP pair has maintained a reasonably constant price range over the last 20 years, with the GBP having the upper hand. But recently, the EUR has gained against the GBP, resulting in higher prices. Between 2015 and 2022, the EUR/GBP price moved from between 0.7006 and 0.7875 to between 0.8201 and its current price. Several factors have increased the EUR/GBP prices by over 17%. As governments grapple with rising inflation rates, policies will determine the future price of the pair.
The European Union has 28 member countries, with the UK a member until 2020. The most robust economies in the Eurozone are Germany, France, Italy, Russia, and Spain. Other strong economies include Turkey, Switzerland, Poland, and the Netherlands. The Eurozone economy relies heavily on natural gas, oil, and commodities, having about one-sixth of the global economy. Services, industry, and agriculture contribute the most to the Eurozone’s GDP. The political tensions between Russia and the EU have resulted in higher energy prices and an all-time high inflation rate. As the ECB implements monetary policies to arrest inflation and spark economic growth, the EUR price is projected to reach higher levels.
The UK economy is currently the sixth-largest economy, having recently lost the fifth position to India. The UK faces economic woes sharpened by rising energy prices, inflation, and rising costs of general goods. The UK also elected a new Prime Minister who has revealed plans to tackle energy costs and reignite the economy. Despite having low economic growth in the last few years and facing a recession by the end of 2022, the UK remains a strong economy with its monetary policies. The BOE is set to increase lending rates, resulting in higher demand for the GBP.
The economic calendar for the UK, Eurozone, and other countries that impact the EUR/GBP price, is essential information for traders. Traders consider information about employment rates, lending rates, and other economic indicators such as budget and trade deficits/surpluses before investing in any currency. Some important events and announcements to watch out for in the next three years are:
- Bank of England and ECB monthly lending rates.
- Core inflation rates
- Quarterly growth rates.
- Monthly balance on trade
- ZEW Economic Sentiment Index
- Wage growth
- Labor cost index
- S&P global services and manufacturing PMI flash
- Non-monetary policies.
Factors Affecting EUR/GBP Price
These four factors are critical to future EUR/GBP prices:
Rising energy costs across Europe, the UK, and America have severely affected the economy, pushing many households onto the poverty line. In the UK, average household energy costs will double to £3500 by 2023. Europe faces an energy crisis that may push member countries to adopt other energy sources. If the UK and EU succeed in lowering energy costs, the economy may rebound.
Mounting political tensions impact oil and gas prices, government interventions, and investor confidence. While EU and UK leaders are wary of escalating tensions, the economy takes a beating from the resultant effects. If the efforts to end the Russian-Ukrainian conflict yield positive results, the EUR may gain against the GBP.
Central bank monetary policies
The ECB and BOE’s response to a worsening economy will impact future EUR/GBP prices. Investors expect higher lending rates, intervention packages, and the adoption of alternative energy. 2023 and beyond are critical for the EU and UK economies. More robust monetary policies will improve the demand for the currencies.
The GDP, inflation, interest rates, services and manufacturing activity, and unemployment all impact investor confidence in trading currencies. Inflation rates are nearing new 20-year highs, forcing economic downturns. The UK and Eurozone are especially hit. Several responses to inflation have had little impact, and both the UK and EU face reduced currency power. Inflation reduces a currency’s purchasing power, reducing demand and lowering values.
GBP/EUR Forecasts for the Next Three Years
The EUR/GBP is expected to stabilize by the end of Q4,2023, hitting 1.1771 and 1.1749 by Q3, 2023. With the Eurozone economy set to shrink, global macro model projections put the GBP at a faster recovery rate than the EUR. According to WalletInvestor, the GBP/EUR rate will hit 1.2116 by 2023 and may hit 1.2473 by 2025 if present economic projections persist. Despite expectations for economic interventions, the pair could trade at higher prices. The Long Forecast predicts prices within the 1.104 to 1.117 range for 2023, 1.109 to 1.193 for 2024, and 1.102 to 1.203 for 2025. The UK must answer one crucial question in the coming months: how low can the GBP go? Despite hitting new lows against the USD and EUR, the GBP may hit a rebound before 2025.