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How could market volatility in 2024 compare to previous 5-year averages?

Currency market volatility has been par for the course across major currency pairs over the last five years amid a global pandemic, red-hot inflation and historic interest rate rises. Will the resulting foreign exchange (FX) risk be perpetuated in 2024, as we look ahead to the timing and outcome of elections and the potential for rate cuts against a backdrop of cooling inflation?

Unable to see into the future, we can’t be certain how the variables that influence currency markets will play out. Consequently, it’s impossible to accurately predict which direction exchange rates will shift or by how much. What we can do is highlight how market volatility in 2024 might compare to the previous five-year averages – and what this means for businesses with exposure to FX risk.

Currency market volatility

The past five years have been one of the most volatile periods on record in currency markets – from the pound falling off a cliff against the euro when the pandemic stuck to eclipsing the Brexit vote which caused the UK currency to fall by over 25% against the dollar in 2016.

To underscore this heightened volatility, let’s explore some seismic swings in value experienced by three major currency pairs during this period and how they might have impacted a business like yours.

Pound to euro

When the pandemic-induced recession blindsided the economy in March 2020, the pound plummeted against the euro, dropping from an annual high of 1.2073 in mid-February to 1.0524 – its lowest level since the depth of the 2009 financial crisis – just over a month later. This sharp decline represented a huge variance of 14.7% between the high and low points.

This contributed to significant cost swings for businesses with pound to euro FX requirements when taken in the context of the last five years. For example, if a UK business had €1 million FX exposure annually between 2019 and 2023, it would have seen an average underlying cost swing of £89,902 – making it difficult to achieve financial stability and cash flow certainty.

difference for £1m annual FX exposure

Pound to dollar

The GBP/USD exchange rate was decimated by the government’s catastrophic tax-cutting mini-budget that triggered a debt crisis in September 2022, causing the pound to slump to almost parity with the dollar – a record low. This marked a stark decline from a high of 1.3748 in January amid interest hike tailwinds to a low of 1.0382 eight months later – a whopping variance of 32.42%.

Any UK business that needed to purchase goods from the US eight months from the January high would have been in for a financial shock if they failed to manage the FX risk proactively. If, for example, those goods cost $2 million, the price to purchase them at the annual peak of £1=£1.3748 would have been £1,454,757. By September, their costing, pricing and budgeting would have been inaccurate after the exchange rate sunk to £1=$1.0382, causing the cost of the $2 million to surge to £1,926,411 – an eye-watering extra £471,654.

Euro to dollar

Described by analysts as the “worst year in the euro’s history”, 2022 was also a testing period for the single currency. The EUR/USD exchange rate peaked at 1.1495 at the beginning of the year, but broke parity for the first time in 20 years in July, touching 0.9534 – a 20-year low.

A key driver of the euro’s depreciation against the dollar in 2022 was the widening monetary policy gap between the Federal Reserve and the ECB. The Fed fired the starting gun on its interest rate hiking cycle in March, while the ECB was slower to act, only announcing its first rate hike in July 2022.

2024: more of the same?

Last year also emphasised the heightened volatility that has become entrenched in currency markets. Despite an initial resurgence for the pound in the wake of a turbulent 2022, volatility persisted as the battle to bring inflation under control intensified. This forced central banks to double down on interest rate rises, before pausing their prolonged hiking cycles later in the year amid cooling consumer prices.

For businesses with FX exposure, these sudden market movements would have forced them to reprice, revise budgets, and re-forecast, in some instances, multiple times throughout the year – making it almost impossible to plan with conviction. The FX risk that this currency market volatility precipitates isn’t showing any signs of going away in 2024 across currency charts.


The BoE indicated it will lower interest rates in 2024 but later than other banks amid sticky inflation – potentially supporting the pound in the first half of the year. However, if cooling inflation encourages the central bank’s rate-setters to vote for cuts sooner the UK currency may weaken.

The next UK general election will almost certainly be in 2024. A likely scenario is for Prime Minister Rishi Sunak to call an election in October, giving him time to ease the cost-of-living crisis first. According to a Bloomberg poll of investors, an odds-on Labour victory could boost the pound. However, political uncertainty surrounding the vote could cause market volatility.

Investors in the pound will also keep an eye on UK GDP data. While the US economy has shown resilience, the UK is on the brink of recession. A slowdown could see the domestic economy slip into a recession and pile pressure on the pound.


Growing expectations that the Fed will be the first central bank to wind in interest rates could apply downward pressure on the dollar, especially if other banks remain on pause for longer. This could be compounded by a potential risk-on rally in global markets, which would dent the safe-haven currency.

Politics will be the main driver of dollar sentiment towards the end of the year, with the US Presidential election to be held in November. With former president Donald Trump on course to become the Republican nominee and currently leading President Joe Biden in the opinion polls, political turbulence could spark volatility in the dollar.


While the ECB has attempted to play down rate cut speculation, the Eurozone’s economy is stagnating and inflation is retreating towards the central bank’s 2% target more quickly than forecast. These conditions have raised investor bets that the ECB will lower rates in 2024.

Currency markets will be at the mercy of this race to the bottom, as investors speculate which central bank is going to cut rates first, fastest, and furthest. Ultimately, whichever central bank takes action first is likely to cause weakness in its respective currency.

The potential for a Eurozone recession may also weigh on euro exchange rates. Higher interest rates slammed the bloc through 2023. There is potential for the single currency to weaken if this leads to an economic downturn in 2024.

2024 forecast comparison

How could these testing conditions influence major currency pairs in 2024, and how does this compare to the high and low averages over the last five turbulent years in the markets?

Pound to euroPound to dollarEuro to dollar
NatWest analysts forecast the GBP/USD exchange rate will be 1.15 by the end of March, 1.18 by the end of June, 1.15 by the end of September and 1.14 by the end of the year – below the five-year average high of 1.2011, but above the low of 1.0843.NatWest analysts forecast the GBP/USD exchange rate will be 1.24 by the end of March, 1.27 by the end of June, 1.31 by the end of September and 1.30 by the end of the year – below the five-year average high of 1.3668, but above the low of 1.1742.NatWest analysts expect a near-term retreat to 1.05 but forecast a rebound to 1.15 by year-end amid Fed rate cuts – below the five year average high of 1.1799 and matching the low of 1.0535.

Managing currency volatility

While currency forecasts can indicate the potential direction of future market movements, don’t base your FX strategy on them. If you do and the forecast you’re pinning your hopes on ends up being wide of the mark it can drive up the cost of your FX exposure. This uncertainty brings the need for a more proactive and systematic approach to FX risk management into sharp focus for CFOs.

At Lumon, we will help you plan for all outcomes by working with you to develop a tailored hedging strategy that aligns with your risk appetite and FX goals. The flexible solutions that underpin your strategy will empower you to mitigate the risk of your profit margins being squeezed by a sudden market shift by securing exchange rates for future transactions – replacing emotion-led, reactive trade decisions with certainty and stability in your financial planning.