January 2025 Currency Market Review: Central Banks Hold Steady as Inflation Eases

January 2025 saw global currency markets begin the year with cautious optimism. Major central banks, including the Bank of England, maintained their policy stance as inflation continued to moderate and economic growth remained subdued. The pound, dollar, euro, and yen all responded to evolving data and market expectations for possible monetary easing later in the year.

British Pound (GBP)

The Bank of England did not hold a Monetary Policy Committee (MPC) meeting in January 2025. The previous MPC meeting was in December 2024, and the next was scheduled for February 2025. The Bank Rate remained at 5.25% throughout January, as set in August 2023 and unchanged until the cut to 4.5% in February 2025.

UK inflation data released in January showed further progress in disinflation, with CPI inflation at 2.8% in December 2024 (reported in January 2025). The labour market showed signs of gradual loosening, and wage growth, while still elevated, had begun to moderate. Economic growth remained sluggish, with GDP growth forecasts for 2025 reflecting ongoing global uncertainty and the impact of international trade policies.

Sterling’s performance in January reflected market anticipation of potential rate cuts later in the year, with traders closely monitoring inflation and economic growth trends.

US Dollar (USD)

The US Federal Reserve did not hold a policy meeting in January 2025. The federal funds rate remained at 5.25% to 5.5%. US inflation data released in January indicated a continued, if gradual, moderation in price pressures. Labour market data suggested ongoing resilience, but with some early signs of cooling. Market participants looked ahead to the next FOMC meeting for further guidance on the timing of any policy adjustments.

Euro (EUR)

The European Central Bank (ECB) did not hold a policy meeting in January 2025. The most recent ECB meeting was in December 2024, where rates were left unchanged. Eurozone inflation data published in January pointed to ongoing disinflation, with headline CPI moving closer to the ECB’s 2% target. Business sentiment and PMI surveys indicated a cautious but stabilising outlook for the region’s economy.

Japanese Yen (JPY)

The Bank of Japan did not hold a policy meeting in January 2025. The BoJ maintained its ultra-loose monetary policy stance, keeping its short-term policy rate unchanged. Japanese inflation data released in January showed price growth near target, while machinery orders and other indicators pointed to modest improvement. The yen remained sensitive to global risk sentiment and speculation about the future direction of BoJ policy.

Key Economic Events and Releases in January 2025

Dentral Bank Actions:

• Bank of England: No meeting, Bank Rate held at 5.25%

• European Central Bank: No meeting, rates unchanged

• US Federal Reserve: No meeting, rates unchanged

• Bank of Japan: No meeting, rates unchanged

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Major Data Releases:

• UK: CPI inflation (December data), 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

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Outlook

January 2025 set the stage for a year defined by central bank caution and a focus on evolving economic data. With inflation moving closer to target in the UK and euro area, and growth prospects remaining subdued, markets anticipated that policy easing could begin later in the year. The pound, dollar, euro, and yen all traded in response to shifting expectations, with attention turning to upcoming central bank meetings and data releases for clearer signals on the monetary policy outlook.