What will affect the global financial markets in 2025?

The shift from one year to the next on January 1^st might be marked by celebration, but rarely does anything really change. Back in 1999 doomsayers did believe that the millennium bug would hit mankind hard when the clock struck midnight on December 31^st, but that never happened. And nor does the changing of the year have any particular policy relevance. Tax rates, for instance, are not changed as the year ticks over as governments adhere to tax years, which, most often, are not the same as calendar years. So, what about 2025? Has the transition to a new year heralded any changes that could be of consequence going forward? We can think of two.

One is the expiry of the gas transit deal between Ukraine and Russia, and the second is the fact that the new US debt limit will be fixed at the level of outstanding debt until Congress can agree to a new debt ceiling deal. While many analysts suspect that neither of these events will spark any sort of volatility in financial markets straight away, they could both store up problems for the longer term.

On the first of these—Russian gas supplies to Europe—a five-year deal that allowed Russia to transmit natural gas through Ukraine to predominantly Eastern European countries expired on January 1^st. Europe only gets 5% of its gas supplies from this source, and the long-term plan, of course, is to wean Europe off Russian gas altogether. Nonetheless, the threat of cold weather combined with relatively low European gas stocks at the moment and the elimination of this supply via Ukraine could mean that prices shoot higher, if only temporarily.

Slovakian Prime Minister Fico, whose country is most affected by the drop in Russian gas supply, has warned that the impact could be a EUR40-50bn increase in European consumer and business gas bills with a EUR60-70bn annual cost attributable to possibly higher electricity prices. If correct, these are increases that Europe can ill afford. Not only could they help tip this period of weak growth into a recession, they could hamper the ECB as it tries to lower policy rates.

Another issue to bear in mind in early 2025 is that we could see the new Trump administration in the US try to turbocharge peace negotiations between Russia and Ukraine. He has threatened to stop funding Ukraine if it does not engage in discussions and threatened Russia that it will increase Ukraine’s fighting power if it does not come to the negotiating table.

Of course, it may turn out that this is really a one-sided threat (against Ukraine) and not a two-sided one, but the point remains that the geopolitics around the conflict in Ukraine could bring even more uncertainty, volatility, and price increases in the European natural gas market—something that we feel would hang very heavily on the euro if it happened.

The new year might herald new risks for the euro, but the US dollar may not get off scot-free. As mentioned earlier, the clock has ticked over on the US debt ceiling. The new debt ceiling is likely to be hit around mid-January, and after that, the Treasury will have to take extraordinary measures to avoid breaching the limit. As we’ve seen before, these measures can, and do, delay ‘default’ day by some months. There is no panic yet. Hence, it seems unlikely at this stage that the dollar, or the bond market for that matter, will wilt under the weight of the debt ceiling payload. But we can’t be sure that this is how things will play out over time.

Incoming President Trump, for instance, has lobbied for Congress to remove the ceiling altogether. That’s unlikely to happen, but this sort of pressure suggests that upcoming negotiations about lifting the debt ceiling could be particularly fraught, especially if the new heads of the Department of Government Efficiency (DOGE), Musk and Ramaswamy, pressurise Congress to start with a splash by making huge government savings a precondition for a debt ceiling increase. Ultimately, budget wrangling like this could unseat the US dollar, just as gas price volatility could whack the euro.