Insights 
VT 
December closed out a demanding year for global markets, with the long-awaited Federal Reserve meeting bringing the market to a decisive turning point.
A year shaped by slow growth, stubborn inflation pressures, and persistent geopolitical risk. The Fed delivered its third consecutive rate cut following an extended period of restrictive policy.
Risk assets initially welcomed the move, but the accompanying message remained cautious.
Inflation pressures are easing, but the Fed has made it clear that future policy decisions will remain data-dependent.
Sticky services inflation and resilient labour markets continue to limit the scope for aggressive easing in 2026, reinforcing the idea that the path ahead may be gradual rather than decisive.
Policy Divergence Remains A Core Theme
The Bank of England followed with its own rate cut, as softening domestic demand and moderating inflation gave policymakers room to adjust.
However, the BoE also flagged structural headwinds such as tight labour supply and elevated wage growth, which continue to complicate its policy path.
This reinforced the broader theme of 2025: global central banks pulling policy levers at different speeds, as economies diverge in their recovery and risk profiles.
Risk Assets Finish 2025 Strongly
Despite lingering headwinds, equity markets closed the year on a high. The Fed’s December move helped reinforce expectations that financial conditions will loosen gradually in 2026.
The S&P 500 and Nasdaq approached record territory, while the Dow posted fresh highs. Market reaction to the rate decision was relatively muted, suggesting much of the easing narrative had already been priced in.
Gains were concentrated in growth-sensitive sectors, particularly those tied to technology and AI, which have driven index performance all year.
Gold Reinforces Its Safe-Haven Role
Gold extended its stellar run in December, finishing the year with gains of over 60 percent. Silver soared even higher, up more than 100 percent.
Lower real yields, central bank diversification, and geopolitical stress all contributed to strong demand across both metals.
The Fed’s rate cut signalled a peak in real yields, reducing the opportunity cost of holding gold and other non-yielding assets.
Continued tensions in Eastern Europe and the Middle East, alongside tariff uncertainty and sustained central bank purchases, reinforced gold’s role as a strategic hedge.
Silver also benefited from structural demand trends tied to electrification, AI-driven infrastructure, and green energy expansion.
Oil Ends The Year Under Pressure
Crude oil had a mixed and ultimately underwhelming finish to 2025. Demand concerns persisted, especially from China and parts of Europe, where growth momentum continued to slow.
While OPEC+ maintained cautious supply discipline, increased output from non-OPEC producers, particularly the US, capped upside potential.
The Fed’s December cut provided limited relief, as energy markets remain far more sensitive to demand indicators than to interest rates.
A mid-year price spike, driven by rising tensions between Israel and Iran, proved short-lived. For the full year, oil underperformed as supply resilience outweighed geopolitical disruptions.
Currency Markets Adjust to Rate Cuts
In foreign exchange markets, the US dollar weakened modestly following the Fed’s rate cut, offering some relief to emerging market currencies. Capital flows, however, remained selective.
Sterling and the euro saw limited upside, constrained by weaker growth outlooks and ongoing policy uncertainty.
The US dollar softened modestly in December following the Fed’s move, which allowed brief relief for several emerging market currencies. However, capital flows remained selective.
Sterling weakened on the Bank of England’s cut, with markets viewing the UK as more vulnerable to a slower growth outlook and limited fiscal space.
Looking across 2025, the US Dollar Index (USDX) declined sharply in the first half of the year as growth slowed and traders priced in Fed cuts. The second half brought stabilisation, with safe-haven demand and relative resilience capping further downside. USDX ended the year consolidating between 96.25 and 100.50.
Crypto Markets Find A Base
Crypto markets steadied in December after a sharp November correction. Bitcoin found support and traded within a tighter range, signalling improved investor confidence.
The broader trend remained intact, with December marking a period of consolidation rather than reversal.
The Fed’s rate cut was broadly supportive of risk sentiment, while institutional interest in regulated crypto products continued to grow.
With financial conditions expected to ease gradually in 2026, many investors interpreted recent price action as a healthy reset.
The Key Drivers Of 2025
Across all asset classes, four macro drivers defined the market landscape this year: geopolitical instability, global trade frictions, divergent central bank policy, and the delicate balance between easing conditions and triggering inflation.
December tied these threads together, with gold, equities, and selected currencies all reacting to a macro environment that remains complex, but increasingly directional.
Early Signals To Watch In January
As the calendar flips to 2026, markets will be watching closely to see how policy shifts begin to filter into economic data.
Early CPI prints, labour market releases, and manufacturing surveys will guide sentiment on whether easing cycles are taking hold without reigniting inflation.
Equities may continue to benefit from supportive liquidity conditions, but with valuations stretched, expectations are high.
Currencies and commodities will remain sensitive to geopolitical events and relative growth signals. January could set the tone for Q1, especially if volatility returns to the surface.
