US Inflation Holds Steady at 2.7% for December 2025

Natalie Gordon

Economic

Cryptocurrency

Data Interpretation

Central Bank

Summary:

US inflation held firm at 2.7% in December 2025, signaling stable Fed policy prospects.

The latest data from the U.S. Bureau of Labor Statistics confirms that headline inflation remained at 2.7% for the year ending in December 2025, signaling a period of continued economic stability.

This figure, which met market expectations, provides crucial insight for both Federal Reserve policymakers and market participants, including those in the cryptocurrency space. The report also showed that core inflation, which strips out volatile food and energy prices, held firm at 2.6%.

A Deeper Look at the Inflation Data

The December 2025 report revealed no month-over-month changes from November, reinforcing the theme of price stability. The primary components driving the annual figure include:

• Energy Prices: Increased by 2.3% year-over-year.

• Food Prices: Rose by 3.1% over the same period.

The consistency in these numbers suggests that the underlying price pressures in the economy are not accelerating, providing a predictable environment for businesses and consumers.

What Stable Inflation Means for Fed Policy

With both headline and core inflation showing no unexpected volatility, the Federal Reserve is less likely to make aggressive adjustments to its monetary policy. Economists widely believe that this trend of stable inflation supports the case for holding interest rates steady in upcoming policy meetings.

Continued stability over several months could strengthen confidence in the effectiveness of current economic strategies and allow for more predictable financial planning.

Crypto Markets Remain Unfazed

The cryptocurrency sector registered no significant reaction to the inflation report. Market analysts noted that major assets like Bitcoin and Ethereum did not experience any immediate volatility following the release of the data.

This lack of response is typical when economic figures align with consensus forecasts. Since the stable inflation numbers did not introduce new uncertainty into the broader financial landscape, the crypto market continued to trade on its own specific drivers and sentiment.

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Risk Warnings and Disclaimers

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Gerik

Economic

A Record Surplus Driven By Export Momentum

China’s trade surplus expanded to almost $1.2 trillion in 2025, the largest on record, reflecting the outsized role exports continue to play in stabilizing the economy. Customs data showed total exports rose 5.5% over the year to $3.77 trillion, while imports stagnated at $2.58 trillion. This compares with a surplus of $992 billion in 2024, underscoring how the gap between outbound and inbound trade has widened rather than narrowed. The expansion of the surplus is causally linked to stronger export growth rather than a collapse in imports, pointing to external demand as the dominant force.

Momentum strengthened toward the end of the year. In December, exports increased 6.6% year on year in dollar terms, exceeding economists’ expectations and accelerating from November’s 5.9% pace. Imports also picked up, rising 5.7% year on year compared with 1.9% in November. The simultaneous rise in exports and imports suggests improving trade activity rather than a contraction-driven surplus, reinforcing the view that China remains deeply integrated into global supply chains despite geopolitical headwinds.

Shifting Trade Geography Away From The U.S.

Exports to the United States have declined sharply since President Donald Trump returned to office and intensified trade tensions. However, this weakness has been largely offset by stronger shipments to South America, Southeast Asia, Africa, and Europe. This reflects a structural reorientation of China’s trade patterns rather than a temporary diversion. The relationship here is compensatory: reduced access to the U.S. market has pushed firms to deepen penetration elsewhere, maintaining aggregate export growth even as bilateral tensions rise.

Robust export performance has helped China’s economy grow at an annual rate close to its official target of around 5%. Economists broadly expect this dynamic to persist into 2026. BNP Paribas’ chief China economist Jacqueline Rong said exports are likely to remain a major growth driver this year, highlighting how external demand continues to fill gaps left by softer domestic consumption and investment. This dependence is causal, as exports directly contribute to output and employment, particularly in manufacturing-heavy regions.

Rising Global Tensions And Policy Pushback

The scale of China’s surplus has raised concerns among trading partners worried about a surge of low-cost imports undermining domestic industries. The head of the International Monetary Fund recently urged China to address its economic imbalances and accelerate a shift away from export-led growth toward stronger domestic demand and investment. These calls reflect a correlation between China’s surplus expansion and rising protectionist sentiment abroad, which could feed back into future trade constraints.

China’s prolonged property downturn continues to weigh on consumer confidence and internal demand. The slump followed regulatory crackdowns on excessive borrowing that led to widespread developer defaults, limiting the recovery of household spending. Against this backdrop, exports remain a stabilizing force. Natixis economist Gary Ng expects export growth to slow to about 3% in 2026, down from roughly 5% in 2025, but still sufficient to keep the trade surplus above $1 trillion.

Overall, China’s record trade surplus highlights both resilience and vulnerability. While export strength has cushioned the economy against domestic weakness and external shocks, it has also intensified global scrutiny and reinforced calls for rebalancing. The sustainability of this model in 2026 will depend on whether external demand remains robust and how geopolitical frictions evolve.

Source: Bloomberg

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Ukadike Micheal

Political

Remarks of Officials

Economic

Energy

Daily News

Top Diplomats Tackle Stalled Negotiations

U.S. Secretary of State Marco Rubio and India's External Affairs Minister Subrahmanyam Jaishankar held discussions on trade Tuesday, raising questions about the future of a long-awaited bilateral deal.

According to a U.S. Department of State statement, the two officials discussed ongoing trade negotiations, energy security, and critical minerals. The conversation also touched on their "shared interest in strengthening economic cooperation" and expanding bilateral civil nuclear cooperation.

The call took place just one day after Sergio Gor, the new U.S. ambassador to India, expressed confidence that the two nations, as close partners, would resolve their differences, including the delayed trade agreement.

Trump-Era Tariffs Strain Bilateral Ties

The negotiations are happening against a backdrop of a sharp downturn in U.S.-India relations during Donald Trump's second presidency. Washington has imposed tariffs of 50% on India—among the highest in the world—partly due to its purchases of Russian oil.

Despite months of negotiations and multiple phone calls between Trump and Indian Prime Minister Narendra Modi, India remains one of the few major economies without a trade agreement with the United States.

Conflicting Signals on the Path Forward

Recent official comments have sent mixed messages about the deal's progress. Last week, U.S. Commerce Secretary Howard Lutnick claimed a trade agreement failed to materialize last year because Modi did not call Trump. India dismissed this assertion as inaccurate.

Despite the friction, India has taken steps to appease the Trump administration, such as reducing its purchases of Russian oil. Ambassador Gor noted this week that both sides "continue to actively engage" and are determined to get the trade talks across the finish line.

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James Riley

Bond

Political

Forex

Remarks of Officials

Economic

Central Bank

Traders' Opinions

Daily News

Japan's latest auction of five-year government bonds showed a clear drop in investor appetite on Wednesday, signaling that mounting political risks are beginning to weigh on the market.

Bond futures slid after the results were released, confirming investor nervousness. The selloff comes as markets digest reports that Prime Minister Sanae Takaichi is considering a snap election, a move that has revived the so-called "Takaichi trade" and sent the yen tumbling.

Weak Demand Haunts 5-Year JGB Auction

The auction's results pointed to weaker-than-average demand. The bid-to-cover ratio, a key metric of investor interest, stood at 3.08. This figure is a decline from the 3.17 ratio recorded at the previous sale in December and falls short of the 12-month average of 3.54.

In response to the political uncertainty, the five-year government bond rate has surged to 1.615%, its highest level since the bond was first issued in 2000. Another indicator of weak demand, the "tail"—the difference between the average and lowest accepted prices—widened to 0.05 from 0.04 last month.

Rising Fiscal Risks and BOJ Rate Hike Pressure

Investors are now bracing for heightened fiscal risks. A snap election could solidify the position of the ruling Liberal Democratic Party, potentially clearing the path for increased government stimulus spending.

This prospect arrives as Takaichi's government prepares to introduce a record initial budget for the fiscal year starting in April. According to the Ministry of Finance, this new budget will involve reducing the issuance of super-long government bonds while increasing sales of two- and five-year debt.

At the same time, the yen has fallen to its lowest point against the U.S. dollar since July 2024. This currency weakness is increasing the pressure on the Bank of Japan (BOJ) to consider an early interest rate hike to stabilize the yen.

Markets Brace for a Potential BOJ Move

While most economists anticipate the central bank will wait until June before hiking rates again—following its December move to a three-decade high—the yen's persistent slide could force the BOJ to act sooner.

Former BOJ board member Makoto Sakurai stated in an interview that concerns over Takaichi's fiscal policy could prompt the central bank to raise its benchmark interest rates as early as April.

Current market pricing reflects this uncertainty. Overnight index swaps show that traders have not fully priced in the first rate hike of the year until July, leaving significant room for market sentiment to shift if the yen's weakness continues.

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Gerik

Economic

Stocks

Japan Leads Regional Gains Amid Political Speculation

Asian equity markets advanced modestly on Wednesday, supported primarily by Japanese shares. Investors positioned for the possibility of a snap election in Japan, which local media reported could be called for February 8. The prospect of renewed fiscal stimulus lifted sentiment toward Japanese equities, pushing the Nikkei more than 1% higher to a record level. At the same time, Japanese government bonds fell, reflecting expectations of looser fiscal policy and heavier issuance. This so-called “Takaichi trade” has gained momentum as markets reassess Japan’s fiscal outlook, though some strategists caution that legislative constraints in the upper house may limit how far policy easing can realistically go.

The Japanese yen slid to 159.415 per dollar, its weakest level since July 2024, sharpening market focus on the risk of official intervention. Currency traders have increasingly treated the 161 level as a psychological threshold, beyond which authorities may feel compelled to act to curb volatility. Strategists noted that a decisive break higher could shift expectations for a Bank of Japan rate hike forward to April, altering the balance of currency dynamics. For now, yen moves are being shaped by anticipation and positioning rather than confirmed policy decisions, keeping volatility elevated.

Broader Asia And Global Equity Signals

Beyond Japan, MSCI’s broad Asia-Pacific index rose 0.2%, hovering just below a record high reached earlier in the week. Chinese equities added 0.7% in early trading, staying close to a 10-year peak, while European stock futures pointed to a muted open. U.S. equities closed lower overnight, led by declines in financial shares after comments from JPMorgan executives revived concerns over proposed caps on credit card interest rates. These cross-market moves suggest selective risk-taking rather than a uniform shift in sentiment.

U.S. inflation data released on Tuesday showed moderate underlying price pressures, reinforcing the view that the pass-through from import tariffs has eased. While the data kept the option of rate cuts later this year in play, markets continue to expect the Federal Reserve to hold rates steady in the near term. Traders are pricing at least two cuts this year, with the first move unlikely until after Fed Chair Jerome Powell’s term ends in May. Analysts noted that inflation is not cooling fast enough to justify imminent easing, which has allowed the dollar to retain support.

Fed Independence And Currency Market Volatility

Concerns over Federal Reserve independence continued to influence currency markets. Earlier in the week, the dollar had weakened after the U.S. Justice Department threatened to indict Powell in connection with a building renovation project. That pressure eased after Powell pushed back and global central bank officials issued a coordinated statement backing him. Market participants largely interpreted the episode as political rather than a fundamental institutional risk, reinforcing the perception that existing safeguards around the Fed remain intact. The dollar index edged higher to 99.243, recovering from earlier losses as those fears subsided.

Geopolitical tensions added another layer of complexity. President Donald Trump urged Iranians to continue protesting, prompting Tehran to accuse Washington of encouraging destabilization. These developments lifted oil prices and propelled safe-haven assets higher. Gold rose 0.6% to $4,613.93 per ounce, while silver jumped more than 2% to a fresh record. The surge in precious metals reflects heightened risk sensitivity rather than changes in physical supply or demand.

Overall, Asian markets are navigating a fragile balance between stimulus optimism, currency instability, and global political uncertainty. Equity gains remain cautious, underpinned by expectations rather than hard policy shifts, while the yen’s weakness and persistent questions around central bank independence continue to shape cross-asset behavior.

Source: Reuters

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Justin

Forex

Political

The South Korean won extended its decline toward its weakest level since the global financial crisis, intensifying pressure on authorities to defend the currency as local investors shift funds overseas.

The currency slipped as much as 0.2% on Wednesday to 1,478.25 won per dollar, on track for a ten-day losing streak and nearing its lowest level since March 2009.

Dollar demand in Korea has remained strong, fueled by local investors pouring into US equities and importers seeking the greenback for payments. Korean retail investors bought about $2.2 billion of US stocks through January 13, according to Korea Securities Depository data. Additional pressure on the won has come from foreign funds accelerating their selloff of Korean equities.

Despite authorities' broad-based efforts to support the won late last year, the currency has also faced renewed pressure from external factors. Strong US economic data has boosted the dollar, while the yen has weakened amid early election headlines in Japan. Rising oil price concerns, driven by escalating tensions in the Middle East, have added another layer of strain.

In recent weeks, authorities intensified efforts to prop up the won with verbal interventions and by waiving the foreign-exchange stability levy for banks. Yet these measures have done little to halt the currency's slide, and markets are now focused on what further steps policymakers might take to counter a decline that risks fueling imported inflation and eroding consumer demand.

The won has fallen over 2.6% against the dollar this year, making it Asia's worst-performing currency and one of the weakest globally.

Source: Bloomberg Europe

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Winkelmann

Political

Economic

Japan declined on Wednesday to comment on the Bank of Japan's absence from a statement by other central banks supporting U.S. Federal Reserve chair Jerome Powell, following the Trump administration's threat of criminal indictment.

"The matter concerns the BOJ's own judgment, so the government will refrain from commenting," said Japan's top government spokesman, Chief Cabinet Secretary Minoru Kihara, in a regular press conference.

The BOJ was not among the major central banks that issued the joint statement backing Powell.

The rare joint statement was signed by the heads of the European Central Bank, the Bank of England, the Bank of Canada, as well as the central bank chiefs of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil and France.

Asked about the importance of independence of central banks, Kihara said the government believes that the ultimate responsibility for macroeconomic policy lies with the government.

"As stipulated by law that monetary policy is part of overall economic policy, the BOJ is required to maintain close coordination and sufficient communication with the government," he said. "That said, the specific methods of monetary policy should be entrusted to the BOJ," he added.