India's Budget Targets Growth Amid Global Volatility

The European Central Bank (ECB) is set to confront the issue of a surging euro at its first policy meeting in 2026, a development that analysts warn could push eurozone inflation further below its target. Officials in Frankfurt have already voiced concerns over this trend.

While the ECB has held interest rates steady since June and no immediate changes are anticipated, several critical issues are demanding the bank's attention. Developments since the last rate decision on December 18, including moves by the Federal Reserve, threats of new tariffs from US President Donald Trump, and a recent decline in the dollar, have all come under scrutiny.

Dollar's Decline Fuels Euro Surge

Comments from President Trump, who stated he was not bothered by the US dollar's status, contributed to a significant drop in the currency. This slide propelled the euro to approximately $1.20, a level not seen since 2021.

In response, ECB officials have expressed concern about how this currency shift might be received. François Villeroy de Galhau, a key member of the ECB's Governing Council, emphasized that the euro will be a crucial determinant of future monetary policy. Another Governing Council member, Martin Kocher, confirmed the bank will closely monitor the currency for any continued upward movement.

Below-Target Inflation Complicates ECB Policy

The focus on the euro comes as eurozone inflation fell below 2% in December. Analysts forecast a further decline, predicting the figure will be around 1.7% when Consumer Price Index data is released on Wednesday, February 11.

The ECB had previously projected that price growth would naturally reach its target without further intervention. However, a persistently strong euro could undermine this outlook and potentially trigger a new round of discussions about rate cuts.

"Europe has started the year with many geopolitical issues, and the ECB will likely keep its focus on bigger problems," noted analysts. "This means they will probably overlook the recent US trade conflict involving Greenland, the slight drop in inflation below 2%, and the rising euro. However, these changes highlight that there are growing risks to the economic outlook."

Global Central Banks Diverge on Rates

The ECB is expected to release quarterly surveys on bank lending and expert economic forecasts soon, positioning it among several central banks scheduled to announce interest-rate decisions this week.

Globally, a mixed policy landscape is emerging:

• The UK, Mexico, and the Czech Republic are likely to hold rates steady.

• India and Poland are expected to implement rate cuts.

• The Reserve Bank of Australia might become the first major central bank to hike rates this year.

Meanwhile, this month's US jobs report will be a key data point, measured against the Federal Reserve's view that the labor market is stabilizing after a period of slow hiring late last year.

A senior Iranian official has indicated that diplomatic negotiations with the United States are making headway, a surprising development that contrasts sharply with a recent American military buildup in the region.

The signal for de-escalation follows US President Donald Trump's deployment of warships to the area and his public statements that an attack on Iranian soil was possible if the country refused to negotiate a "deal."

Diplomatic Channels Open Through Regional Allies

Ali Larijani, head of Iran's Supreme National Security Council, suggested that behind-the-scenes progress was being made. "Contrary to the hype of the contrived media war, structural arrangements for negotiations are progressing," he stated.

Larijani's comments followed a meeting in Tehran with Qatari Prime Minister Sheikh Mohammed Abdulrahman bin Jassim Al Thani. A statement from Qatar confirmed the two discussed "ongoing efforts to deescalate tensions in the region." Qatar, a major US ally with closer ties to Iran than other Gulf Arab nations, is positioned to act as a key mediator.

In a separate diplomatic push, Iranian President Masoud Pezeshkian emphasized a desire to avoid conflict during a phone call with Egyptian President Abdel Fattah el-Sissi, another close US ally. "The Islamic Repubic of Iran has never sought, and in no way seeks, war and it is firmly convinced that a war would not be in the interest of neither Iran, nor the United States, nor the region," Pezeshkian said.

Trump Confirms 'Serious' Dialogue

Speaking to reporters aboard Air Force One, President Trump confirmed that Iran is talking "seriously" with the US. He expressed hope for an "acceptable" deal, outlining two primary conditions:

• Iran must commit to having "no nuclear weapons."

• The Iranian government must stop killing anti-government protesters.

Domestic Unrest Creates a Volatile Backdrop

The diplomatic overtures are occurring as Iran grapples with a severe economic crisis and widespread domestic unrest. Demonstrations that began in December, fueled by high unemployment, inflation, and a weakening rial currency, have spread nationwide.

The government's crackdown on these protests has resulted in significant casualties, according to human rights organizations.

• The Human Rights Activists News Agency reports 6,713 deaths, including 6,305 demonstrators.

• The Center for Human Rights Iran places the number of killed at 6,479.

• The Oslo-based Iran Human Rights watchdog estimates that "at least 40,000 people, including children, have been detained."

Last month, Trump encouraged the protests, telling Iranians that "help is on its way." However, he later softened his rhetoric on military action, claiming his shift was because Iran had decided not to execute protesters.

Japan is on the brink of facing market turmoil over its fiscal policy, with a former top currency diplomat warning that further tax relief could trigger a selloff in government bonds and the yen similar to the UK's "Truss shock."

Hiroshi Watanabe, a former vice finance minister for international affairs, stated that markets remain highly sensitive to any moves by the ruling Liberal Democratic Party (LDP) to expand sales tax cuts to secure voter support.

"We're somehow managing to hold the line for now, but it's right at the edge," Watanabe said in an interview. Watanabe, now a visiting professor at Tokyo Seitoku University, was in charge of Japan's currency policy from 2004 to 2007.

Election Pledges Raise Fiscal Alarms

The warning comes as Prime Minister Sanae Takaichi seeks a new mandate for her economic reflation strategy in a snap election scheduled for February 8.

Investors are watching closely for any sign that the LDP might lean toward more tax cuts if the election campaign proves challenging. This political pressure is reviving concerns about fiscal discipline in a country where public debt is more than double the size of its economy.

A market rout last month provided a stark example after Takaichi pledged to cut the consumption tax on food for two years. The announcement triggered a sharp selloff in super-long Japanese government bonds and pushed the yen toward levels that had previously prompted government intervention.

Market Reaction and Government Response

Markets have stabilized since then, with the yen recovering to around 154 per dollar. This rebound followed speculation that Japanese and U.S. authorities conducted rate checks, a move often seen as a precursor to direct currency intervention.

Watanabe believes that top officials have taken note of the market's negative reaction. "I do think that Takaichi, as well as Finance Minister Satsuki Katayama, have registered the warnings coming from global capital markets," he said, suggesting that caution from U.S. and European investors has likely influenced policymakers' public statements.

However, he cautioned that investors would react strongly to any hint that tax relief could be expanded beyond the current pledges.

Headwinds Cloud the Yen's Outlook

Looking ahead, Watanabe sees limited potential for a sustained recovery in the yen. While he noted that "there is a possibility that the yen could briefly move into the 140s per dollar," he does not foresee a prolonged period of appreciation.

Several key factors are expected to weigh on the Japanese currency:

• Persistent concerns over Japan's public finances.

• The country's structural trade deficit.

• A lack of clarity regarding the Bank of Japan's future interest rate path.

These combined pressures make it difficult to envision a scenario where "yen appreciation continues" for an extended period.

A second round of trilateral talks between Russia, Ukraine, and the United States is scheduled for February 1 in Abu Dhabi, according to Kremlin spokesman Dmitry Peskov. Russia's participation marks a significant policy shift, bringing the US directly into negotiations.

While details from the first round remain scarce, public statements and recent reports offer crucial clues into the high-stakes discussions. Here are five critical insights into the evolving diplomatic landscape.

Figure 1: Officials gather for trilateral talks in Abu Dhabi, a diplomatic format that signals a major policy shift for Russia.

Donetsk: The Final Sticking Point?

Territory appears to be the central unresolved issue. On the eve of the initial talks, top Putin aide Yuri Ushakov stated that a lasting settlement was unlikely without addressing the territorial issue based on a previously agreed-upon formula.

This was echoed last week by US Secretary of State Marco Rubio, who told the Senate Foreign Relations Committee, "The one remaining item … is the territorial claim on Donetsk." This lends credibility to earlier reports that Russia is demanding Ukraine's withdrawal from Donbass.

A Post-Conflict NATO Deployment Is on the Table

Discussions are also underway regarding post-conflict security arrangements. Rubio revealed that "security guarantees basically involve the deployment of a handful of European troops, primarily French and the UK, and then a US backstop," a move that would require Russia's consent.

However, the US is still debating its commitment to a potential future conflict. This follows earlier signals from Steve Witkoff and Jared Kushner indicating American support for NATO troops in Ukraine. This topic will likely be a key focus in the upcoming second round of negotiations.

The Potential 'Quid Pro Quo' for Peace

A potential trade-off may be emerging. According to the Financial Times, US security guarantees for Ukraine are contingent on its withdrawal from Donbass. The New York Times adds that the Kiev-controlled portion of the region could become a demilitarized zone or host neutral peacekeepers.

This suggests a possible deal: Ukraine cedes control of Donbass in exchange for US security guarantees and a NATO military presence. Russia might agree to such terms if neutral peacekeepers serve as a buffer.

Trump's Cautious Approach to Pressuring Zelensky

Despite the promise of this potential arrangement, Ukrainian President Zelensky remains defiant about withdrawing from Donbass. For his part, President Trump has avoided publicly pressuring Zelensky with tangible consequences, such as halting arms sales to the EU destined for Ukraine.

This suggests there are clear limits to how far the United States is willing to go to secure a deal, even as it facilitates the talks.

Why Russia Agreed to US Involvement

Despite these limitations, the US diplomatic role has become indispensable. Russia's agreement to expand bilateral talks with Ukraine into a trilateral format is a major change in its foreign policy. This indicates that Moscow believes Washington is sincere in its efforts to negotiate an agreement, even if it won't use all its leverage.

With the US now formally at the table, the talks are unlikely to revert to a bilateral format unless the conflict is still ongoing by the time of a potential Trump 2.0 administration.

Overall, these developments suggest that President Putin may be considering significant compromises on the maximum goals set at the beginning of the special operation. While it is too early to draw definitive conclusions, any official agreement—whether a ceasefire, armistice, or peace treaty—will be heavily analyzed to understand the strategic calculations behind Russia's evolving position.

South Korea's exports surged in January, accelerating to their fastest pace in over four years and marking eight straight months of growth. Official data released Sunday shows that a global boom in demand for artificial intelligence servers has ignited semiconductor sales, positioning the country as a key bellwether for global trade.

January Trade Data at a Glance

Exports from Asia's fourth-largest economy jumped 33.9% year-over-year in January, reaching a total of US$65.85 billion. This performance significantly outpaced the 29.9% increase forecast by economists in a Reuters poll.

Imports also grew, rising 11.7% from the previous year to US$57.11 billion.

Semiconductor Sales Double on AI Demand

The semiconductor sector was the standout performer, with exports more than doubling by 102.7% compared to a year earlier. According to the trade ministry, this rally is fueled by consistently high demand for AI servers, which has sustained the rise in memory chip prices that began last year.

Market analysts expect this trend to hold. "The surge in chip sales is expected to continue for the time being due to factors such as soaring semiconductor prices and supply shortages," said Park Sang-hyun, an analyst at iM Securities. He also noted that January's strong performance was partly supported by having more working days compared to the same month last year.

Growth Is Broad-Based Across Sectors

The export growth was not limited to technology. Of South Korea's 15 primary export categories, 13 recorded an increase in sales. Key sectors showing strength included:

• Chips

• Cars

• Petrochemical products

• Steel

• Computers

Geographically, exports to China saw the most dramatic growth, jumping 46.7% year-over-year. Shipments to the United States increased by 29.5%, while exports to the European Union grew by 6.9%.

"It is positive that major items such as semiconductors and automobiles, as well as promising items such as consumer goods, showed even growth," said industry minister Kim Jung-kwan in a press statement.

US Trade Policy and Protectionism Loom as Risks

Despite the strong performance, officials remain cautious about the global economic outlook. "Uncertainty in the trade environment has increased due to the US tariff policy and the spread of protectionism," Minister Kim warned.

His comments follow US President Donald Trump's announcement to raise tariffs. Kim stated on Saturday that South Korea requires further discussions with the United States regarding a trade deal reached last year, after holding two days of talks with his American counterpart through Friday.

The last major nuclear arms treaty between the United States and Russia is set to expire this Thursday, threatening to dismantle decades of agreements designed to prevent nuclear conflict. Without a last-minute deal, the New START treaty will dissolve, removing critical restrictions on the world's two largest nuclear arsenals.

The treaty's potential demise reflects President Donald Trump’s "America First" approach to international agreements. However, the current standoff appears driven more by political inertia than a deliberate strategy to end the accord.

A Missed Opportunity for Trump and Putin?

Russian President Vladimir Putin proposed a one-year extension of New START back in September. When asked about the offer, President Trump told a reporter it "sounds like a good idea to me" before boarding his helicopter. Since then, there has been little public progress.

Dmitry Medvedev, who signed the treaty in 2010 as Russia’s president alongside Barack Obama, stated in a recent interview that Moscow has received no "substantive reaction" from Washington but was still giving the Trump administration time to act.

Jon Wolfsthal, director of global risk at the Federation of American Scientists, argued that Trump and Putin could have secured an extension with a simple phone call. "This is a piece of low-hanging fruit that the Trump administration should have seized months ago," he said. The potential failure to renew New START was a key factor in the decision to move the symbolic "Doomsday Clock" closer to midnight.

The China Factor: A Sticking Point for Washington

A White House official, speaking anonymously, confirmed that Trump wants to establish "limits on nuclear weapons and involve China in arms control talks." The official noted that the president "will clarify on his own timeline" how to achieve this.

During his first term, Trump also insisted that China—a rapidly growing nuclear power, though with a much smaller arsenal than the US or Russia—be included in any new treaty. This demand was highlighted when a US negotiator placed an empty chair with a Chinese flag at the negotiating table.

Expert Warnings and a Stalled Process

Analysts suggest the Trump administration's unconventional structure has hindered complex negotiations. Daryl Kimball, executive director of the Arms Control Association, noted that by sidelining career diplomats, the decision-making process has been limited to a small inner circle.

"Trump seems to have the right instinct on this issue but has thus far failed to follow through with a coherent strategy," Kimball said.

The treaty imposes a cap of 1,550 deployed strategic nuclear warheads for both the US and Russia, a nearly 30% reduction from a 2002 limit. It also restricts launchers and heavy bombers to 800 each—an arsenal still large enough to cause global devastation.

How Moscow Views the Treaty's End

Some Russian military analysts believe the treaty has already lost its relevance. "It's clear that the treaty has reached its end," said Alexander Khramchikhin, describing its potential expiration as the disappearance of an "empty formality."

Vassily Kashin, director of Moscow's Center for Comprehensive European and International Studies, suggested Russia will adopt a wait-and-see approach. If the United States begins to expand its nuclear arsenal, Moscow will respond. "But if the Americans don't take any drastic measures... Russia will most likely simply wait, observe and remain silent," he said.

A Precarious Future for Global Arms Control

The New START treaty was previously extended in 2021, when President Joe Biden took office and quickly agreed to a five-year renewal, pushing its expiration to 2026. However, relations deteriorated following Russia's invasion of Ukraine, and in 2023, Russia suspended a key provision of the treaty that allowed for mutual inspections.

Despite the current tensions, Trump has renewed diplomatic engagement with Russia, inviting Putin to a summit and attempting to broker a deal in Ukraine.

Beyond the US and Russia, other nations possess nuclear weapons, including US allies France and Britain, as well as India, Pakistan, Israel, and North Korea. These countries are not part of existing international arms control agreements.