2025 financial market outlook, in this scenario, investors will rush into safe-haven assets like the US dollar, the Japanese yen, and gold and sell stocks and crypto assets.
"If you were to ask me about the key driving theme of 2025, I would say it will be the after-effects of the U.S. presidential elections," says Kar Yong Ang, a financial market analyst at Octa broker. He notes that Donald Trump's proposed policies introduce more uncertainties than opportunities. The risk of rising inflation due to new trade tariffs and immigration policies will differentiate an optimistic 2025 scenario from a pessimistic one. Before delving into potential scenarios for 2025, let's first examine the current economic conditions.
Declining interest rates will likely lead to lower returns on cash deposits across most industrialized economies, prompting investors to seek riskier assets like equities and cryptocurrencies. "Another important aspect of the current monetary policy outlook is that the Fed's easing cycle will slow relative to other countries. This means the US Dollar Index will likely remain well-supported in 2025," argues Kar Yong Ang. However, he cautions that many bullish factors for the U.S. dollar may already be priced in, making the greenback appear somewhat overvalued. "I'm skeptical about further dollar gains," he adds, advising caution for dollar bulls.
If the U.S. adopts a hardline approach and implements blanket tariffs, the risks of inflation and recession will rise. In such a scenario, investors are likely to flock to safe-haven assets like the U.S. dollar, USD/JPY, gold, and sell off stocks and cryptocurrencies.
Betting on widespread growth in U.S. equities could be risky. Instead, traders should focus on specific industries, particularly those involved in the adoption and commercialization of Artificial Intelligence (AI). Companies that effectively integrate AI into their operations and invest in talent and infrastructure will gain a competitive edge, making tech companies likely to perform well in 2025. Additionally, the increasing use of AI and data centers will drive up energy demand, benefiting energy companies and utilities.
"I expect gold to reach a new all-time high in 2025. $3,000 per ounce is achievable. With numerous risks on the horizon, demand for safe-haven assets will be strong," says Kar Yong Ang. Gold will continue to serve as a hedge against political concerns, including government debt levels, inflation, and geopolitical tensions. Central bank demand for gold has already supported prices in 2024, and there are no signs of this trend reversing.
The recent rally in cryptocurrency appears overextended, driven by sentiment and forward-looking hopes. "There is excessive optimism surrounding Bitcoin right now. I foresee a risk of a significant pullback in 2025. However, rather than betting on a bearish correction, I would suggest using it as a buying opportunity," advises Kar Yong Ang.
Overall, 2025 is expected to be a year of reckoning as the implications of the U.S. presidential elections unfold and shape future policies. In a worst-case scenario involving an all-out trade war, global supply chains could be severely disrupted, leading to significant price increases for consumers, reduced business investment, and a sharp contraction in international trade. This scenario would likely cause U.S. equities and most other commodity prices to plummet.
Conversely, if we avoid the worst-case situation, global central banks may continue to cut interest rates, potentially boosting stocks and cryptocurrencies. Our base case scenario lies somewhere in the middle, anticipating considerable volatility and uncertainty in the marketplace. However, we also expect key players to find common ground. The trend of AI transformation is likely to continue benefiting tech and energy companies. It seems probable that XAU/USD will establish a new all-time high in 2025 due to ongoing gold purchases by investors and central banks in response to low interest rates, geopolitical risks, and efforts to diversify away from the dollar. The greenback is expected to reach a significant mid-term peak in 2025, making further appreciation riskier.
Should the regulatory outlook for the crypto industry improve—especially with a potential reshuffling of the Securities and Exchange Commission (SEC)—Bitcoin, Ethereum, and Solana are likely to achieve new all-time highs, particularly in the latter half of the year. "Fundamentally, the outlook for the global economy is positive, but it is fraught with uncertainties and challenges. I anticipate that Forex volatility in 2025 will surpass that of 2024, providing ample short-term trading opportunities for swing and intraday traders," concludes Kar Yong Ang.
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