July 2024 Currency Market Review: Markets Anticipate Rate Cut as Inflation Hits Target

July 2024 saw global currency markets position for a shift in UK monetary policy, as inflation returned to target and the Bank of England prepared for its first interest rate cut since the tightening cycle began. The pound, dollar, euro, and yen all reflected this anticipation, with market participants closely watching central bank guidance and economic data.

British Pound (GBP)

The Bank of England’s Monetary Policy Committee (MPC) did not hold a scheduled policy meeting in July 2024, with the next decision due at the end of the month. The Bank Rate remained at 5.25% throughout July. Market expectations were focused on the MPC’s upcoming meeting, where a rate cut was widely anticipated.

UK CPI inflation had reached the 2% target in May and June, marking the first time in over three years that inflation was at or below the Bank’s official goal. However, the Bank signalled that inflation was likely to rise again in the second half of the year due to changes in energy price comparisons and persistent domestic price pressures. Wage growth and services inflation were both easing, but remained above levels consistent with the 2% target.

In the banking sector, the effective interest rate paid on new time deposits for individuals edged down slightly to 4.42% in July, while the rate on new personal loans rose to 9.14%. Household deposits with banks and building societies increased by £5.7 billion, mainly due to higher ISA and sight account inflows.

Sterling traded in a narrow range, with investors awaiting the Bank’s August policy announcement and updated economic forecasts.

US Dollar (USD)

The US Federal Reserve did not hold a policy meeting in July 2024. The federal funds rate remained at 5.25% to 5.5%. Market participants continued to monitor 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 July 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 July 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 July 2024

Central Bank Actions:

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

• 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, effective deposit and loan rates stable, household deposits rise

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

• Eurozone: CPI inflation, business sentiment, PMIs

• Japan: Inflation, machinery orders, GDP

Outlook

July 2024 set the stage for a pivotal Bank of England policy decision, with inflation at target but expected to rise again. Markets looked ahead to the August MPC meeting for confirmation of a rate cut and updated forecasts. The pound, dollar, euro, and yen all traded in response to shifting expectations, with attention turning to inflation trends and central bank guidance as the year progressed.