February 2025 Currency Market Review: Anticipation Builds Ahead of Central Bank Moves

February 2025 was a month of positioning and anticipation in global currency markets. While major central banks largely kept policy unchanged, market participants focused on economic releases and forward guidance, setting the stage for significant decisions in the months ahead. The pound, dollar, euro, and yen all responded to evolving inflation trends, growth signals, and global risk sentiment.

British Pound (GBP)

The Bank of England’s Monetary Policy Committee (MPC) met on 5 February 2025 and voted to maintain the Bank Rate at 4.5%. The committee noted that UK CPI inflation had continued to fall, reaching 2.6% in January (reported in February), but wage growth and services inflation remained elevated. The Bank signalled that while inflation was moving closer to target, it was not yet confident enough to begin cutting rates. UK GDP growth remained subdued, and the labour market showed gradual loosening.

Key UK data and developments in February:

• Bank Rate held at 4.5%

• CPI inflation at 2.6% (January data, released in February)

• Labour market and wage growth indicators showed some easing

Sterling’s performance reflected the market’s focus on the timing of potential rate cuts, as well as inflation and growth projections.

US Dollar (USD)

The US Federal Reserve did not hold a policy meeting in February 2025, having last met in late January. The federal funds rate remained at 4.25% to 4.5%. The Fed maintained a data-dependent stance, with policymakers and markets looking ahead to the March meeting for any potential changes. US inflation data released in February showed price pressures moderating but still above target. Labour market data indicated ongoing resilience but with some signs of cooling.

Key US data and developments in February:

• Federal funds rate unchanged at 4.25% to 4.5%

• Inflation continued to moderate but remained above target

• Labour market data showed resilience with hints of softening

The dollar was steady, with traders watching for signs of economic slowdown or further policy guidance.

Euro (EUR)

The European Central Bank (ECB) did not hold a policy meeting in February 2025. The most recent ECB meeting was at the end of January, where rates were left unchanged. The next major ECB policy action would come in March. Eurozone inflation data released in February indicated continued progress in disinflation, and business sentiment surveys showed cautious optimism for a gradual recovery.

Key Eurozone data and developments in February:

• ECB policy rates unchanged in February

• Inflation continued to moderate

• Business sentiment and PMIs showed tentative improvement

 The euro’s performance reflected the ECB’s cautious tone and the region’s gradual economic stabilisation.

Japanese Yen (JPY)

The Bank of Japan did not hold a policy meeting in February 2025. The BoJ maintained its ultra-loose monetary policy, keeping its short-term policy rate unchanged. Japanese inflation data released in February showed price growth near target, and machinery orders pointed to modest improvement. The BoJ continued to signal patience, awaiting clearer evidence of sustained inflation before considering any policy tightening.

Key Japanese data and developments in February:

• Policy rate unchanged

• Inflation near target

• Machinery orders and business sentiment showed modest gains

The yen remained sensitive to global risk sentiment and domestic policy expectations.

Key Economic Events and Releases in February 2025

Central Bank Actions:

• Bank of England: Held Bank Rate at 4.5% (5 February)

• European Central Bank: No meeting in February, rates unchanged

• US Federal Reserve: No meeting in February, rates unchanged

• Bank of Japan: No meeting in February, rates unchanged

Major Data Releases:

• UK: CPI inflation, labour market, GDP and retail sales updates

• US: Inflation and labour market data, retail sales

• Eurozone: Inflation, business sentiment, PMIs

• Japan: Inflation, machinery orders, GDP

 Outlook

February 2025 was characterised by central bank caution and a focus on evolving economic data. The pound, dollar, euro, and yen all traded in anticipation of potential policy shifts in the coming months, with inflation and growth trends remaining central to market sentiment. Attention now turns to March, when several central banks are scheduled to meet and may provide clearer signals on the path ahead.