After the last major data release in December, markets usually settle in for a couple of weeks of holiday trading. Tuesday sees the final market-moving economic event of the year with the publication of the US GDP. After that, many large institutional traders will likely take the rest of the year off, which changes market dynamics.

One of the more common phenomena at year-end is the Santa Rally. It’s more pronounced in equities, but the general attitude shift does tend to affect forex as well. After all, currencies are subject to changes in yields and market sentiment. This year, however, there have been some doubts that Santa will come for traders.
 

When Does the Santa Rally Start?

There isn’t a clear definition for when the Santa Rally actually gets going. Typically, December is the second-best trading month for stocks, and a substantial portion of the gains is concentrated at the end of the month. Many statistics consider the last five days of the year (a “trading week”), so for 2025, the year would start on Christmas Eve. Coincidentally, that’s right after the last significant data drop of the year.

Other times, analysts include the first two days of the new year in the statistics. But that’s often because New Year’s Day falls on a Monday or Tuesday, giving a couple of trading days sandwiched between the holiday and a weekend. This time around, the first trading day of the new year is the 5th. US markets are open on the 2nd, but many European and some Asian markets are not. This calendar variation could be one reason there isn’t a specific date set for when to call the start of the rally.
 

Why Might There Not Be a Santa Rally This Year?

Eight times out of ten, markets trend higher amid a surge in risk-on appetite in the final week or two of the year. Some analysts think that 2025 might be the exception given a few factors, such as fiscal policy uncertainty in the US, slow growth forecasts for next year, and general geopolitical tensions.

More specifically, the run-up in stocks before December has left analysts concerned that the market has already taken on too much risk, and it might be time to cool off. This year has not conformed to the usual ups-and-downs patterns of the market, which sees a retracement in September, followed by gains in November and December. Additionally, the Fed’s rate cuts over the last three months could have given the markets a boost that will fade going into next year, as the Fed is expected to hold steady in January.
 

How Does the Santa Rally Affect Forex Markets?

Typically, retail traders tend to be more optimistic than their institutional counterparts. During the holiday season, retail traders tend to dominate in thinner liquidity. This means that even forex markets tend to trade more risk-on, with upward trends that started earlier in the month continuing.

Typically, safe-haven assets underperform, which would usually include gold. But the trend higher in the yellow metal from earlier in the month might keep attracting retail traders who could push it to new highs, counter the traditional market logic. Particularly considering that usually the dollar underperforms into the end of the year. Forex traders might want to keep an eye on stock markets to see whether they are generally trading higher, as this could signal that currency markets will also be trading with more risk appetite in the coming days.

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