August 2024 Currency Market Review: Bank of England Delivers First Rate Cut as Inflation Set to Rise

August 2024 saw a significant shift in UK monetary policy, as the Bank of England cut interest rates for the first time in the cycle. Global currency markets responded to this move and to evolving inflation and growth dynamics in major economies. The pound, dollar, euro, and yen all reflected these developments, with market participants recalibrating expectations for the remainder of the year.

British Pound (GBP)

At its meeting ending on 31 July 2024, the Bank of England’s Monetary Policy Committee (MPC) voted by a narrow majority of 5–4 to reduce Bank Rate by 0.25 percentage points, from 5.25% to 5.0%. Four members preferred to maintain the rate at 5.25%. This decision, announced on 1 August 2024, marked the first rate cut since the Bank began tightening policy in response to earlier inflation spikes.

The MPC noted that twelve-month CPI inflation was at the 2% target in both May and June. However, it projected that inflation would increase to around 2.75% in the second half of the year, as the impact of previous energy price declines faded from annual comparisons, making underlying domestic inflation pressures more apparent. Private sector wage growth had slowed to 5.6% in the three months to May, and services inflation had declined to 5.7% in June. GDP growth had picked up sharply earlier in the year, but underlying momentum was judged to be weaker.

Sterling softened slightly after the rate cut, as markets digested the Bank’s cautious outlook and the likelihood of inflation rising above target in the coming months.

US Dollar (USD)

The US Federal Reserve did not hold a policy meeting in August 2024. The federal funds rate remained at 5.25% to 5.5%. Market participants continued to focus on US inflation and labour market data, with the Fed signalling a patient approach to any future policy changes.

Euro (EUR)

The European Central Bank (ECB) did not hold a policy meeting in August 2024. The ECB had previously left rates unchanged, with Eurozone inflation still above target but gradually easing. Business sentiment and PMI surveys indicated ongoing economic challenges, but with some signs of stabilisation. The euro traded in a narrow range, reflecting the ECB’s cautious stance.

Japanese Yen (JPY)

The Bank of Japan (BoJ) did not hold a policy meeting in August 2024. The BoJ maintained its ultra-loose monetary policy stance, keeping its short-term policy rate unchanged. Japanese inflation data showed price growth near the BoJ’s target, while machinery orders and other indicators pointed to modest improvement. The yen remained sensitive to global risk sentiment and speculation about future policy moves.

Key Economic Events and Releases in August 2024

Central Bank Actions:

• Bank of England: MPC meeting ending 31 July, rate cut from 5.25% to 5.0% (5–4 vote), announced 1 August

• US Federal Reserve: No meeting, rates unchanged at 5.25% to 5.5%

• European Central Bank: No meeting, rates unchanged

• Bank of Japan: No meeting, rates unchanged

Major Data Releases:

• UK: CPI inflation at 2% in May and June, projected to rise to around 2.75% in the second half of 2024; wage growth and services inflation easing; GDP growth moderating

• US: CPI inflation, labour market data, retail sales

• Eurozone: CPI inflation, business sentiment, PMIs

• Japan: Inflation, machinery orders, GDP

Outlook

August 2024 marked a turning point in UK monetary policy, with the Bank of England signalling a cautious approach to further easing as inflation pressures were expected to re-emerge. Markets looked ahead to upcoming central bank meetings and economic releases for clearer signals on the policy outlook. The pound, dollar, euro, and yen all traded in response to shifting expectations, with attention turning to inflation trends and growth prospects as the year progressed.