Currency market watch 2024: Who are the biggest winners and losers so far this year?

The currency market has experienced significant turbulence so far in 2024, with major shifts in risk appetite and monetary policy driving volatility.

As central banks in key economies begin to lower interest rates, following aggressive hikes over recent years, we’ve seen currencies across the board respond in striking ways.

In this post, we explore which currencies have enjoyed the most growth, which have seen sharp declines, and the key factors driving these movements.

GBP rallies amid renewed UK optimism

The pound has been one of the best-performing currencies of 2024 so far. At the time of writing, GBP/USD is up 5% on the year, while GBP/AUD is up 4% and GBP/EUR is up 3.8%.

Sterling’s strength has come from three key factors: the UK’s economic recovery, hopes of political stability, and signs of stubborn inflation.

The first two points contribute to a sense that the country has turned a corner. After a mild recession at the end of 2023, the UK economy has bounced back this year with stronger-than-expected growth.

Meanwhile, the Labour Party won a landslide election victory in July, bringing an end to the infighting and political instability that dogged the Conservatives’ last years in power.

Sterling has also garnered interest as the Bank of England (BoE) may cut interest rates at a slower-than-expected pace due to stubborn inflation and the resilience of the UK economy.

These three factors have turned the pound into an attractive currency for investors, with GBP hitting a near 31-month high against USD and a 29-month high against EUR.

The pound is unlikely to sustain its impressive upward trajectory through 2025, however, as the Labour Party’s honeymoon period comes to an end and the UK’s economic recovery fizzles out. Check out our article titled Will the pound get stronger in 2025? for a detailed GBP forecast for the year ahead.

ZAR climbs as gold hits record high

Another strong performer this year has been the South African rand, with ZAR/USD up 7.2% to hit a 20-month high and ZAR/EUR up 5.5%. The rand is also up against the pound, although by a smaller 2%.

The rand’s success has come thanks to its strong negative correlation with a tumbling US dollar and its strong positive correlation with the price of gold, as the precious metal hit record highs in September.

An end to load-shedding (planned power outages) from South African utility Eskom also supported ZAR. Load-shedding – which has plagued the country’s economy for years – has now been suspended for the past five and a half months.

The new South African Government of National Unity was another factor that aided the rand. After 30 years in power, the African National Congress (ANC) failed to win a majority in this year’s election, leading to a power-sharing agreement with the more economically liberal Democratic Alliance (DA).

Many analysts are cautiously optimistic that the political change could usher in more growth-friendly policy reforms, thereby boosting South Africa’s economic prospects.

USD collapses as Fed starts cutting rates

Turning to the worst-performing currencies, the US dollar is perhaps the most notable, plunging 4.8% against the pound since the start of the year and falling 1.2% against the euro.

The ‘greenback’ had fallen sharply at the end of 2023 and staged a recovery at the start of this year, but since the spring USD has lost significant ground. The US dollar index – which measures USD against a basket of currencies – is down 5.4% from its yearly high achieved in April.

This reversal of fortunes came as softening US inflation and weaker jobs data fuelled bets on coming interest rate cuts from the Federal Reserve. The Fed eventually kicked off its rate-cutting cycle with a bumper 50bps cut in September, sending the US dollar into a tailspin.

An improvement in market risk appetite has also sapped the safe-haven currency’s appeal. Investors are increasingly optimistic about the global economic outlook, with many key countries returning to growth and interest rates falling around the world.

CAD plummets as BoC unwinds monetary policy

North America’s other key currency, the Canadian dollar, also faced hefty losses this year. CAD/GBP is currently down 6.2%, with CAD/EUR down 2.5%, and CAD/USD down 1.3%.

The weakness in the ‘loonie’ is due to the Bank of Canada (BoC) easing its approach to monetary policy. The BoC cut interest rates earlier and at a faster pace than most other central banks, delivering three consecutive cuts in June, July and September.

This dovish approach has driven down the value of the Canadian dollar, while the currency’s increasingly positive correlation with the US dollar has also pressured CAD exchange rates.

What could the final quarter of 2024 bring?

The last three months of the year look set to be just as eventual as the rest of 2024.

Central bank policy will continue to influence the currency market, with major banks around the world set to further cut interest rates. If we see the Fed and the European Central Bank (ECB) cut more aggressively than the BoE, then USD and EUR could soften while GBP rises.

However, the banks are remaining data dependent, so any inflation surprises could derail policy predictions.

Investors will also be paying close attention to the US presidential election in November, which will likely impact global markets. The volatility of a close contest and the potential for a mixed reception to each candidate’s economic policies could create turbulence in the currency markets.

Finally, market risk appetite will continue to play a part in exchange rates. If the conflict in the Middle East escalates into an all-out regional war then widespread risk aversion could see safer currencies (such as USD, EUR, CHF and JPY) climb while more risk-sensitive currencies (GBP, AUD, NZD and ZAR) weaken.

Navigating currency volatility

If you’re handling transactions in multiple currencies, FX volatility can cause headaches for your finance team. It can eat into profits, destabilise your cash flow, and make it difficult to budget with certainty.

Fortunately, knowing when to transfer and having the right tools at your disposal can save you a huge amount of money and hassle.

At Currencies Direct, we offer a range of transfer options paired with expert account management, so we can tailor our services to suit your needs and provide personalised guidance.

You can create a free account online or get in touch with the team to find out more about how we could help you.

We’ve also written a more detailed outlook for the euro for the remainder of 2024, so be sure to read that if you deal with any EUR transactions.