December 2024 Currency Market Review: Year-End Stability as Central Banks Hold Course

December 2024 saw global currency markets close the year with a sense of stability. Major central banks, including the Bank of England, the US Federal Reserve, the European Central Bank, and the Bank of Japan, maintained their policy stances as inflation continued to ease and economic growth remained modest. The pound, dollar, euro, and yen all responded to evolving data and market expectations for the year ahead.

British Pound (GBP)

The Bank of England’s Monetary Policy Committee (MPC) met on 18–19 December 2024 and voted by a majority of 6–3 to maintain the Bank Rate at 4.75%. Three members preferred to reduce the rate to 4.5%. This decision reflected continued progress in bringing inflation down, with UK CPI inflation falling to 2.6% in November (reported in December). The MPC noted that while inflation was moving closer to the 2% target, services inflation and wage growth remained elevated, and economic growth was subdued. The Bank signalled a data-dependent approach, with markets anticipating possible rate cuts in 2025 if inflation continued to moderate.

Sterling traded in a relatively narrow range, with market participants focused on inflation data and forward guidance from the MPC.

US Dollar (USD)

The US Federal Reserve held its final policy meeting of the year on 18 December 2024, keeping the federal funds rate unchanged at 5.25% to 5.5%. The Fed cited further progress on disinflation, with US CPI inflation continuing to ease, but emphasised that it would need to see more evidence before considering rate cuts. Labour market data released in December showed continued resilience, though with some signs of cooling. The dollar remained stable, with traders awaiting signals on the timing of any policy adjustments in 2025.

Euro (EUR)

The European Central Bank (ECB) Governing Council met on 12 December 2024 and left its key interest rates unchanged. The ECB acknowledged ongoing progress in reducing inflation, with Eurozone CPI falling closer to the 2% target. Business sentiment and PMI data released in December indicated a cautious but stabilising outlook for the region’s economy. The euro traded steadily, reflecting the ECB’s cautious tone and the region’s gradual economic recovery.

Japanese Yen (JPY)

The Bank of Japan (BoJ) held its final policy meeting of the year on 19 December 2024, maintaining its ultra-loose monetary policy stance and keeping its short-term policy rate unchanged. Japanese inflation data released in December 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 potential policy adjustments in 2025.

Key Economic Events and Releases in December 2024

Central Bank Actions:

• Bank of England: MPC meeting on 18–19 December, Bank Rate held at 4.75%

• US Federal Reserve: Meeting on 18 December, rates held at 5.25% to 5.5%

• European Central Bank: Meeting on 12 December, rates unchanged

• Bank of Japan: Meeting on 19 December, rates unchanged

Major Data Releases:

• UK: CPI inflation (November data, 2.6%), labour market, GDP and retail sales updates

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

• Eurozone: CPI inflation, business sentiment, PMIs

• Japan: Inflation, machinery orders, GDP

Outlook

December 2024 closed a year of gradual disinflation and cautious central bank policy. With inflation moving closer to target in the UK, US, and Eurozone, and growth prospects remaining subdued, markets entered 2025 focused on the timing and scale of potential rate cuts. The pound, dollar, euro, and yen all traded in response to shifting expectations, with attention turning to upcoming central bank meetings and economic releases for clearer signals on the policy outlook.