SIFs Edge Higher in Final Day of 2025

STOCK INDEX FUTURES

The indexes are higher on thinner trading conditions with the equities getting a bounce following a better-than-expected initial claims figure. Weekly initial jobless claims came in at 199,000 for the week ending December 27, below expectations of 219,000, although it is likely that the figure was distorted by last week’s holiday-shorted data collection period.

Markets continue to assess the outlook for economic growth in 2026 and Fed policy against concerns of sky-high valuations for tech companies. Minutes from the Fed’s latest meeting confirmed that the FOMC is divided on how to weigh conflicting risks of high higher inflation and unemployment next year, although there was broad consensus that there is still room for another rate cut.

CURRENCY FUTURES

US DOLLAR: The dollar is little changed on lighter than normal volume ahead of the New Years holiday. The dollar is set for its biggest annual drop since 2017 this year on the back of interest rate cuts, volatile trade policy, fiscal worries, and worries over central bank independence in the US. A continuation of fiscal worries and interest rate cut themes are likely to continue into 2026 as markets continue to speculate over the health of the labor market, the inflation picture, and Fed policy. The dollar held gains following the release of the Fed’s meeting minutes from its December meeting, which offered little direction or clues on future policy. Policymakers largely agreed to leave rates on hold for the time being until new data either reflects a sustained drop in inflation or a labor market that is cooling faster than expected. The holiday season has kept trading volume light, so market direction is a bit choppier than usual but still, the dollar nudged higher following the minutes.

EURO: The euro edged higher against the dollar in thin trading conditions as most countries in the eurozone are either closed or have an early close for the holiday. The euro is set for its largest yearly gain in eight years as the eurozone economy has proved quite resilient in the face of tariffs and trade uncertainty with the US. The ECB kept interest rates steady in December and signaled they are likely to remain unchanged for some time, with ECB President Lagarde noting that high uncertainty makes forward guidance on future rate moves difficult. In the US, markets are preparing for President Trump to nominate a new Fed chair to replace Powell when his term ends in May, who is likely to favor lowering rates. The Fed cut rates by 25 basis points at its December meeting markets are pricing in two more rate reductions next year, while ECB policy is expected to remain on hold for 2026 and most of 2027 with the next move potentially being upwards, potentially offering further support the euro.

BRITISH POUND: The pound edged higher against the dollar and is set for its biggest yearly gain against the dollar in eight years alongside the euro.  An early close for the New Years holiday for markets in the UK is expected to bring thin trading conditions today. The backdrop for sterling in the second half of the year was of domestic political worries, concerns about the UK’s finances, and stagnant growth. The Autumn budget passed without too noise, alleviating some of the downside pressure that had been building for the pound in the second half in anticipation of a poorly designed budget that would raise income taxes. The Bank of England cut borrowing costs four times in 2025, though policymakers remained split and signaled that the already gradual pace of cuts could slow further. Inflation in the country has been gradually coming down but policymakers have signaled that they would like to see a sustained drop in inflation before moving again on rates.

JAPANESE YEN: The Japanese yen fell to 156.76 yen per dollar, while Japanese markets are closed for the New Years holiday, which will bring thin trading conditions. The cabinet recently approved Prime Minister Takaichi’s 122.3 trillion yen budget, which aims to balance aggressive fiscal spending and debt management by curbing new bond issuance. However, Japan’s public debt is twice the size of the country’s economy, giving the government limited flexibility to implement further stimulus measures. These dynamics have led to strong downside pressure against the currency following Takaichi’s election, while signs that the Bank of Japan will potentially raise rates slower and more cautiously than expected disappointed markets. However, the yen’s has found some support from signals that government authorities could possibly intervene in FX markets to support the currency.

AUSTRALIAN DOLLAR: The Aussie is lower in light trade and an early close in Australia due to the New Years holiday. The Aussie is on track for an 8.5% annual gain against the dollar, its first in five years. Minutes from the Reserve Bank of Australia’s latest meeting indicated the board is prepared to tighten policy if inflation does not ease as anticipated, putting the spotlight on the fourth-quarter CPI report due in late January. A stronger-than-expected Q4 core inflation print is likely to support the case for a rate hike at the central bank’s February meeting, with market odds implying a 28% chance of a hike. In recent days, the Aussie has been supported by record-high commodity prices including gold, silver, and copper, reflecting commodity-linked performance of the currency due to the country’s reliance on exports.

INTEREST RATE MARKET FUTURES

Yields are higher across the curve with strong selling following a better-than-expected jobless claims figure for the week ending December 27, although the figure was likely distorted by the holiday-shortened week. The Fed’s December meeting minutes did little to offer clues on monetary policy other than that policymakers will likely want to hold on cutting rates until they see further, sustained evidence of cooling inflation and/or a labor market that is cooling faster than expected. However, policymakers do expect to cut rates again in 2026. November’s CPI inflation report was promising, showing that inflation cooled to 2.7% year-over-year, a steep drop from September’s 3.0%. However, the data required a technical fix to be applied to the data collection efforts, which likely biased the figures downwards. Upcoming reports could showcase a hotter inflation reading as data collection efforts resume to normalcy and price pressures are reflected more accurately. Last week’s GDP data also spurred some doubts regarding the amount of easing the economy could see in 2026 as the economy grew at an annualized rate of 4.3% in the third quarter, largely due to a strong uptick in consumer spending (+3.5%). If this pace of spending growth is maintained in the Q4 report, policymakers could error further on the cautious side. Still, this report also came with the same warnings that November’s inflation report brought regarding the accuracy of the figures due to data collection efforts.

The spread between the two- and 10-year yields is 67.20 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.471%.

Interested in more futures markets?  Explore our Market Dashboards here.