2025 Financial Market Outlook by Octa Broker

Key messages from Octa for 2025:

●
In 2025, the implications of
the U.S. presidential election will play out in full force.

●
A full-scale tariff war
between the U.S. and the rest of the world is a major global risk.

●
An additional headwind is
growing fiscal deficits in the U.S. and Europe.

●
Investors in industrialised
countries will probably avoid cash as interest rates are generally projected to
decline.

●
Instead, investors will
likely prefer to invest in risky assets like U.S. stocks and crypto.

●
Equities may still perform
well, but investors should focus on specific sectors and not bet on broad-based
growth.

●
The commercialisation of AI
and increased use of data centres will benefit technological companies as well
as energy and utilities.

●
Gold will remain a major
protective asset as geopolitical risks are not going away.

●
The U.S. dollar seems
slightly overvalued, at least in the short term. Betting on its continuing rise
is risky.

●
The risk of a major downward
correction in bitcoin is very high in 2025, but if it does take place, it
should be treated as a buying opportunity.

2024, a year of
geopolitical stress and major political changes, is drawing to a close. It is
time to focus on the future and identify new trading opportunities. However,
according to Octa broker, the outlook for the global economy is uneven and
mixed, ‘rife with uncertainties and riddled with challenges’, so traders are
advised to take a cautious stance. In this article, Octa broker looks at key
economic and political developments that will shape the next year and offers
exclusive guidance into their potential impact on various asset classes.

‘If you were to ask me what will be 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, adding that Donald Trump’s proposed policies provide more
uncertainties than opportunities. Indeed, it is the risk of rising inflation
induced by new trade tariffs and immigration policies that separates an
optimistic 2025 scenario from a pessimistic one. Before we start analysing the
likely scenarios for 2025, let’s first look at the current economic conditions.

Current situation

Interest rates in most
industrialised economies are currently 75-100 basis points (bps) below their
recent peaks. However, real interest rates (adjusted for inflation) are still
positive. As Kar Yong Ang explains: ‘If
history is any guidance, interest rates are still relatively high. In fact, I
think they are more restrictive than stimulative and will most likely continue
to go down in 2025’. In fact, at the time of writing, the fixed income
market (interest rate swaps) was implying a further 50 bps of cuts from the
Federal Reserve (Fed), 100 bps from the European Central Bank (ECB), 50 bps
from the Bank of Canada (BoC) and 50 bps from the Bank of England (BoE). As a
result, the monetary policy divergence between the Fed and the rest of the
world has pulled the U.S. Dollar Index (DXY) to a multi-month high.

U.S. stocks have
performed very well over the past two years. However, the bullish trend in the
S&P 500 and NASDAQ is beginning to show signs of exhaustion, especially
after the Fed indicated that it intends to slow the pace of future rate cuts.

Gold (XAU) was moving
in a very well-defined bullish trend for most of 2024 and set a new all-time
high at the end of October. However, the volatility in gold started to increase
after the U.S. presidential election brought policy uncertainty. Currently,
XAUUSD finds itself in a sideways market, trading range-bound between 2,550 and
2,720, indicating a lack of a clear trend.

Bitcoin (BTC) made
headlines in 2024 when its price jumped above $100,000 per coin. A major
impulse came in November after Donald Trump’s victory in the U.S. presidential
election fuelled hopes of crypto industry deregulation. However, these hopes
have not yet been fulfilled, leaving Bitcoin and other crypto coins at risk of
a sharp downward correction.

2025 outlook

Macro and the U.S. dollar

Declining interest
rates mean that returns on cash (bank deposits) in most industrialised
economies will continue to go down, prompting investors and traders to put
their money into riskier assets like equities and cryptocurrencies. ‘Another important feature of the current
monetary policy outlook is that the Fed’s easing cycle will slow relative to
the rest of the world. It means that the U.S. Dollar Index [DXY] will likely remain well-supported in 2025’,
argues Kar Yong Ang. However, a lot of bullish factors for the U.S. dollar
are already priced in, and the greenback has actually started to look somewhat
overvalued. ‘I’m sceptical about further
dollar gains’, says Kar Yong Ang, adding that dollar bulls should be very
cautious.

If the U.S. plays
hardball and implements blanket tariffs, inflation and even recession risks
will rise. In this scenario, investors will rush into safe-haven assets like
the U.S. dollar, the Japanese yen, and gold and sell stocks and crypto assets.

Equities

Betting on broad-based
growth in U.S. equities is dangerous. Instead, traders should focus on specific
industries and sectors. The main theme here is the adoption and
commercialisation of Artificial Intelligence (AI). Companies that integrate AI
into their core operations and invest in AI talent and infrastructure will gain
a competitive edge. Therefore, tech companies are likely to perform well in
2025. By the same token, the increased use of AI and data centres is boosting
energy demand, so energy companies and utilities are also likely to shine in
2025.

Gold

‘I expect gold to set a new all-time high in 2025. $3,000 per
ounce is not impossible. There are too many risks heading our way in 2025, so
there will be plenty of demand for safe-haven assets’,
says Kar Yong Ang, a financial market analyst at Octa broker. Indeed, gold will
continue to remain an effective hedge against key political concerns, including
government debt levels, inflation, and geopolitical tensions. Furthermore,
central banks’ demand for gold has already supported gold prices in 2024, and
there are no reasons to expect this trend to reverse.

Crypto

The latest rally in
crypto looks overextended. It has been driven by sentiment and embedded in
forward-looking hopes. ‘There is just
too much optimism in Bitcoin right now. I think there is a risk of a
significant pullback in 2025. But rather than betting on a bearish correction,
I would advise using it as a buying opportunity’, says Kar Yong Ang.

Wrap-up

Overall, 2025 will be
a year of reckoning as the impact of the U.S. presidential elections unfolds,
determining the course of future policy. In the worst-case scenario of an
all-out trade war, global supply chains would be severely disrupted, leading to
significant price increases for consumers, decreased business investment, and a
sharp contraction in international trade. Under this scenario, U.S. equities
and most other commodity prices would drop. However, should we avoid the
worst-case scenario, global central banks will likely continue to cut interest
rates, pulling stocks and crypto assets higher.

Our base case scenario
is somewhere in the middle. We expect to see a lot of volatility and
uncertainty enter the marketplace, but we also expect key players to sort out
their differences and find common ground. The AI transformation trend is likely
to continue benefiting tech and energy companies. It is highly probable that
XAUUSD will establish a new all-time high in 2025, given the likely continued
gold purchases by investors and central banks in response to low interest
rates, geopolitical risks, and dollar diversification efforts. The greenback
will likely reach a major mid-term peak in 2025, so betting on its continuing
appreciation is risky.

In case the regulatory
outlook for the crypto industry starts to brighten (as seems likely) and the
reshuffling of the Securities and Exchange Commission (SEC) yields productive
results, Bitcoin, Ethereum, and Solana will probably hit new all-time highs—particularly
in the second half of the year. Kar Yong Ang, a financial market analyst at
Octa broker, concludes: ‘Fundamentally,
the outlook for the global economy is actually positive, but it’s rife with
uncertainties and riddled with challenges. I bet Forex volatility in 2025 will
be higher than it was in 2024, so there will be plenty of short-term trade
opportunities for swing and intraday traders alike’.

About Octa

Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and a variety
of services used by clients from 180 countries who have opened more than 52
million trading accounts. To help its clients reach their investment goals,
Octa offers free educational webinars, articles, and analytical tools.

The
company is involved in a comprehensive network of charitable and humanitarian
initiatives, including the improvement of educational infrastructure and
short-notice relief projects supporting local communities.

Since
its foundation, Octa has won more than 90 awards, including the ‘Most Reliable
Broker Global 2024’ award from Global Forex Awards and the ‘Best Mobile Trading
Platform 2024’ award from Global Brand Magazine.

This article was written by FL Contributors at www.forexlive.com.