RegencyFX give their monthly update on developments in the foreign exchange markets. The currency market has certainly been an interesting place in January 2025. As the markets prepared for Donald Trump’s inauguration on 20th January.

• US Dollar Strength: The US Dollar gained significant strength throughout the month, driven by a robust US economy, diminishing expectations of significant Federal Reserve interest rate cuts, and the impact of new US economic policies.
• Euro and Pound Sterling Weaken: Both the Euro and Pound Sterling faced headwinds. The euro weakened further due to restrictive trade practices and the ECB cutting its main interest rates by 0.25 of a percentage point, with the deposit rate lowered from 3.0% to 2.75%. This was the fifth time the ECB has cut rates since its cycle of rate rises ended in September 2024.
• The pound also experienced pressure, potentially dipping below 1.2000 against the US dollar due to sluggish UK economic growth and the strengthening US dollar.
• US Stock Market Volatility: The US stock market experienced volatility, particularly in the technology sector. A Chinese AI breakthrough, DeepSeek, rattled markets as it challenged the dominance of US AI companies, leading to a significant decline in Nvidia’s stock.
• Bond Yields Rise: Bond yields rose markedly, driven by expectations of higher inflation due to new US economic policies.
• Global Equity Markets Mixed: Global equity markets showed mixed performance. US equities experienced a strong start but faced volatility towards the end of the month. European and UK equities outperformed US equities, benefiting from a weaker pound and positive economic data.

Looking Ahead:

The foreign currency market is expected to remain dynamic in the coming months, with potential for further volatility and unexpected shifts. Traders will be closely monitoring central bank actions, economic data releases, and the potential for US trade wars as Donald Trump starts to impose tariffs on other major economies.

Currency ranges in January:

GBP/EUR

High: 1.2068 on January 8, 2025

Low: 1.1784 on January 12, 2025

GBP/USD

High: 1.2564 on January 7, 2025.

Low: 1.2107 on January 13, 2025.

GBP/AUD

High: 2.0064 on January 8, 2025.

Low:  1.9603 on January 20, 2025

EUR/USD

High: 1.0523 on January 27, 2025.

Low: 1.0193 on January 13, 2025.

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