March 2025 Currency Market Review: Central Bank Actions and Evolving Economic Signals

March 2025 was a pivotal month for global currency markets, with major central banks making key policy decisions and important economic data shaping expectations for the months ahead. The pound, dollar, euro, and yen all responded to these developments, with volatility reflecting both monetary policy and macroeconomic trends.

British Pound (GBP)

The pound traded with moderate volatility in March as the Bank of England’s Monetary Policy Committee (MPC) met on 20 March and voted by a majority of 8 to 1 to maintain the Bank Rate at 4.5%. The MPC cited ongoing disinflation. UK CPI inflation fell to 2.6% in March from 2.8% in February but also noted that wage growth and services inflation remained elevated. The committee signaled that while rate cuts could come later in 2025, it was not yet confident that inflation would sustainably return to target. UK GDP growth continued to slow, and the labour market showed further signs of loosening.

Key UK data in March:

• CPI inflation: 2.6% (March)

• Labour market: Gradual loosening, wage growth still elevated

• Retail sales: Modest improvement

Sterling’s movements reflected the market’s focus on the timing of future rate cuts, with traders watching inflation and growth data closely.

US Dollar (USD)

The US dollar saw notable movement in March, driven by the Federal Reserve’s policy meeting. The Fed held its target range steady at 4.5%, citing ongoing but moderating inflation. Importantly, the Fed signaled it would slow the pace of balance sheet reduction (quantitative tightening) from 60 billion dollars to 40 billion dollars per month starting in April. US economic releases included CPI, which showed inflation remained somewhat sticky, and non-farm payrolls, which indicated ongoing but slightly cooling job growth.

Key US data in March:

• CPI inflation: Continued but sticky

• Non-farm payrolls: Solid, with some signs of cooling

• Retail sales: Resilient

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The dollar was volatile, initially strengthening on some hawkish Fed language, then easing as markets priced in a higher probability of rate cuts later in the year.

Euro (EUR)

The euro was supported by the European Central Bank’s (ECB) policy decision on 6 March to cut its deposit rate by 0.25 percentage points, bringing it to 2.5%. This was the sixth consecutive rate cut since June 2024, as the ECB responded to easing inflation and subdued growth. President Lagarde signaled that further cuts could be considered if the disinflation trend persisted. Eurozone data showed continued declines in inflation and tentative improvement in business sentiment.

Key Eurozone data in March:

CPI inflation: Continued to decline

PMIs: Slow recovery in manufacturing and services

Industrial production: Signs of stabilisation

The euro responded positively to the ECB’s dovish stance and improving sentiment in some sectors.

Japanese Yen (JPY)

The yen remained steady in March as the Bank of Japan (BoJ) held its policy rate unchanged at its March meeting. The BoJ reiterated that more evidence of sustained inflation was needed before tightening policy. Japanese economic indicators, including inflation and machinery orders, pointed to modest improvement.

Key Japanese data in March:

CPI inflation: Near target

Machinery orders: Positive momentum

GDP: Steady, modest growth

The yen’s moves were influenced by both domestic data and global risk sentiment, particularly in response to US and European monetary policy.

Key Economic Events and Releases in March 2025

Central Bank Meetings:

•   Bank of England: 20 March (Bank Rate held at 4.5%)

•   Federal Reserve: March meeting (rate held, QT slowdown signalled)

•   European Central Bank: 6 March (deposit rate cut to 2.5%)

•   Bank of Japan: March meeting (no change)

Major Economic Data:

•   UK: CPI, labour market, retail sales

•   US: CPI, non-farm payrolls, retail sales

•   Eurozone: CPI, PMIs, industrial production

•   Japan: CPI, GDP, machinery orders

Outlook

March 2025 was defined by central banks’ cautious optimism and the gradual shift toward monetary easing, especially in the Eurozone. The pound and dollar responded to nuanced policy signals, while the euro benefited from the ECB’s proactive stance. The yen remained anchored by the BoJ’s ultra-loose policy. As markets moved into April, attention shifted to incoming data and the prospect of further rate cuts later in the year.