As we near the end of 2024, a new year lies ahead. As an investor, now is the perfect time to evaluate your strategy and see if it's working. Additionally, it's a beneficial time to educate yourself on the major changes that will impact the market in 2025.
New chances arise every year as a result of shifting investor sentiment, shifting market dynamics, and new technology developments; however, as any astute investor can tell you, you need to be one step ahead of the curve to take advantage of these opportunities.
In 2025, the financial markets will undergo significant changes, ranging from the emergence of AI to the prominence of proprietary trading methods. In this article, we will scrutinize the key forex market trend predictions in 2025.
2025 Forex Market Trend Predictions: Key Insights to Watch
Artificial Intelligence (AI)
Using Artificial Intelligence (AI) and Machine Learning (ML) in trading isn't exactly ground-breaking, but next year will see even deeper integration and applications that completely revamp the trading process.
AI and ML have levelled the playing field by providing a fresh method for algorithmic trading that can analyse massive volumes of data in microseconds. It operates at a speed that surpasses human capabilities, boasts exceptional accuracy, and completely eliminates errors. Given their capacity to detect patterns and predict future market movements so quickly, they are already becoming indispensable to investors as instruments for more efficient and effective trading.
New developments in AI and ML will continue to improve the market landscape in 2025. Platforms will improve their accessibility and user-friendliness, enabling traders of all levels of expertise to leverage them to their advantage, while models will become more complex and better able to predict based on a variety of economic and geopolitical factors.
Retail Trading Platforms and Social Trading
The democratization of financial markets and the rise of user-friendly platforms have contributed to the current uptick in retail trading. The advent of intuitive user interfaces and technology has levelled the playing field for traders with varying degrees of expertise.
The emergence of "social trading," a function that enables investors to mimic the deals of more seasoned traders, may be a major factor propelling retail trading's further ascent in popularity next year. Novice investors, who are just entering the industry, already appreciate it, and the influx of new traders since the inception of cryptocurrency has given even the most inexperienced investors a competitive advantage as they build their portfolios.
We could expect to witness increasingly more sophisticated social trading platforms in the coming year. These platforms will presumably incorporate AI and ML to streamline the process of following traders and provide a degree of automation for more effective trading.
Proprietary Trading
The year 2025 is going to be the breakout year for proprietary trading. In case you have never heard of it before, here is a quick rundown of the idea.
Trading firms and large financial organisations use their own money (rather than their clients') to take risks in the market and try to make money by buying and selling stocks, commodities, and other assets. It is supported by extremely complex tactics and frequently entails taking calculated risks in pursuit of enormous potential rewards.
We anticipate that funds such as Pro Traders Fund, which provide experienced traders with cash and support while enabling them to trade using the firm's capital instead of their own, will experience a surge in popularity comparable to proprietary trading by 2025.
Blockchain And Tokenisation of Assets
Why hasn't bitcoin made the cut yet? It has no plans to. However, what's even more important right now is the fact that these technologies are built on blockchains, and asset tokenization will further revolutionize financial markets before 2025 even ends.
It would be a mistake to discount blockchain's potential to generate new forms of financial instrumentation; tokenized assets will pave the way for investors to trade any asset type on blockchain-based platforms, expanding the technology's applicability beyond cryptocurrencies to facilitate the swift, secure purchase and sale of physical goods, artwork, and real estate.
The intriguing component is the opportunities it presents for fractional ownership of these assets. People who aren't willing or able to put their whole savings into such assets can still benefit from the diversification and growth opportunities they provide by buying smaller pieces and selling them for larger ones. This makes these assets more accessible to traders.
Dollar Strength
The financial markets are notorious for their second-guessing. Some speculated that the smart money had already decided that Trump would be bad for the dollar when it momentarily fell off on Thursday after the US election. Take a clear stance that the dollar is likely to rally due to the next administration's intentions for less fiscal stimulus and stricter immigration policy, as well as somewhat higher US interest rates and protectionism. Don't overanalyse the situation.
The US economy may overheat, but by 2025, we should inject more air into any potential dollar bubble. Whether it's due to market positioning or open debate over whether Trump's trade hawks want a weaker dollar, the dollar bull trend will inevitably encounter occasional obstacles. We anticipate that the overall trend will benefit the dollar. We are confident enough to push the dollar trade-weighted index beyond its two-year range.
European Currencies Will Underperform
One of the most significant macro predictions for next year is that the European Central Bank will ease monetary policy more quickly due to Trump's protectionism, while the Federal Reserve will be cautious when cutting interest rates due to fiscal stimulus.
We must not overlook geopolitical concerns in the Middle East and Ukraine, the low likelihood of fiscal stimulus in the Eurozone, and the possibility of new conflicts with Brussels caused by elections in EU nations, even though Trump's tariffs will play a pivotal role. Given the euro's already unfavourable rate differential, we doubt markets will lack reasons to add risk premiums of varying degrees.
Europe's risk aversion will also negatively affect the Scandinavian currencies. Given NOK's larger exposure to global trade frictions and SEK's dovish Riksbank, the latter probably has more downside potential than the former. Two currencies that might slightly outperform the euro are the pound and the Swiss franc, which might serve as lower betas to the problems plaguing the Eurozone.
China Will Try to Hold the Line in Asia
We anticipate that the US will raise tariffs in 2025, resulting in a stronger USD and higher interest rates in the US. This will present challenges for Asia Forex, particularly in light of declining inflation and robust domestic fundamentals. China will serve as the focal point.
You can expect the USD/CNY to range from 6.90 to 7.35 next year, with further weakness possible in 2026 based on policy and economic developments.
The Korean won stands out among Asian currencies due to its sensitivity to the Chinese yuan and its substantial trade imbalance with the United States. As a result, we expect it to have the most depreciation pressure. Conversely, we expect the IDR to remain relatively unaffected.
We anticipate that the KRW will remain weak through 2025 due to both domestic and international factors. When discussions and actions around tariffs escalate, Korea is particularly vulnerable due to its huge and increasing trade surplus with the US and its strong reliance on the yuan. The US-South Korean defence cost-sharing agreement is up for possible revision, which might put additional pressure on the KRW.
Indonesia is unique among ASEAN countries in that its proportion of US exports to GDP will have decreased from 11% in 2016 to 8% by mid-2024, as the tariff debate intensifies and tariffs eventually apply to other parts of Asia, not just China, perhaps in the second half of next year. This bodes well for IDR.
Yen-Funded Carry Trade Strategies to Fall Out of Favour
The use of yen to finance carry trades was common and fruitful until July of this year. Since then, uncertainty about the future of US politics and the global economy, along with a significant unwind of short yen holdings, has maintained considerable volatility.
There is a lot of uncertainty around the USD/JPY course, the Japanese domestic economy, BoJ rates, and the high-yield target currencies (formerly the Mexican peso), which makes it even more difficult to justify carry trade techniques.
The implementation of carry trade methods during the peak of Trump's administration (March 2018–September 2019), which involved funding positions in the three highest-yielding G10 currencies (New Zealand dollar, Canadian dollar, and Australian dollar) relative to the yen, resulted in an annualised return of -3.3% and a maximum drawdown of 11%.
The yen will lose ground to Europe in overall returns. Despite having a very open economy, the Swedish krona has one of the lowest yields of any major currency. We expect the yen to reverse against the krona if it does turn, and we can see SEK/JPY retracing to the 13.00 region.
If demand persists, we anticipate the Turkish lira to remain stable. As one of the few emerging market currencies in the area to see a bounce in the aftermath of the US election, the lira served as a testament to the TRY's ability to weather global forces. The potential carry has decreased since the Central Bank of Turkey (CBT) is about to begin an easing cycle; however, this should not dampen the CBT's resolve to maintain USD/TRY stability.
Conclusion
The bottom line is that when the next US government takes office in January, Donald Trump and the Republicans will have complete control of the country, which in effect, will also have an impact on the forex market.
A combination of geopolitical upheavals, technical developments, and worldwide attempts to revive the economy are anticipated to impact the foreign exchange market in 2025. Fluctuations in major currencies like the US dollar, euro, and yuan can be caused by changes in trade connections, inflation control measures, and policies enacted by central banks.
Opportunities for expansion may be there in emerging areas, but so may increase hazards. Traders need to stay alert and use adaptive methods and smart analytics to deal with uncertainty. The inherent volatility of the forex market highlights the significance of informed decision-making and diversification to successfully reduce risks, even while projections provide significant insights.
