Core PCE Price Index, UoM Consumer Sentiment & Inflation Expectations

The euro surged to its highest level against the U.S. dollar since September 2021 on Thursday, with EUR/USD briefly touching 1.17453 before easing to 1.16933, still up 0.08% on the day. The rally marked the pair’s fifth consecutive daily gain, fueled by expectations of sooner-than-anticipated Federal Reserve rate cuts.

Adding to the dollar's weakness, a report from The Wall Street Journal suggested that President Donald Trump may seek to replace Fed Chair Jerome Powell ahead of the official end of his term in May 2026.

U.S. economic indicators released Thursday offered a mixed view of the economy. Weekly initial jobless claims fell to 236,000, beating expectations and improving from the previous 245,000 reading. Meanwhile, durable goods orders soared by 16.4% in May—nearly doubling forecasts—primarily driven by a spike in commercial aircraft demand.

However, the broader economic outlook showed signs of strain. The Bureau of Economic Analysis (BEA) revised its estimate for Q1 2025 GDP to a deeper contraction of 0.5% quarter-over-quarter, compared to the initial 0.2% decline, in line with analyst expectations.

Boston Fed President Susan Collins maintained a cautious stance, noting that July data would be insufficient to justify a rate cut. Richmond Fed President Thomas Barkin echoed this sentiment, adding that existing Fed policy is well positioned amid rising inflation risks from potential tariffs under a second Trump administration.

On the European side, European Central Bank Vice President Luis de Guindos indicated that future monetary policy will hinge on evolving global trade conditions. His comments hinted at the possibility of additional easing measures if economic pressures intensify, further supporting the euro.

Gold prices retreated modestly on Thursday even as the U.S. dollar hovered near three-and-a-half-year lows and Treasury yields continued to decline, as stronger-than-expected U.S. economic data tempered bullish momentum in the precious metal.

Despite a weaker dollar and lower U.S. yields—typically bullish for gold—bullion failed to gain ground. Investors showed caution as recent data pointed to resilience in parts of the U.S. economy, even as the broader growth outlook deteriorates.

Adding to investor hesitancy, a Wall Street Journal report revealed that President Donald Trump may announce his pick to replace Federal Reserve Chair Jerome Powell by early fall. Fed officials, meanwhile, continued to push back against imminent rate cuts.

In geopolitical developments, easing tensions in the Middle East, particularly between Israel and Iran, further reduced gold’s safe-haven appeal. While global risk sentiment remains fragile, the de-escalation contributed to gold’s muted performance on the day.

With traders still digesting mixed economic signals and rising political noise around the Fed, gold may remain range-bound in the short term. However, expectations of rate cuts later in the year could offer renewed support should economic conditions soften further.

Oil prices inched slightly higher on Thursday, supported by a larger-than-expected decline in U.S. crude inventories as demand picks up during the summer driving season. However, gains were capped by signs of easing geopolitical tensions in the Middle East.

Fresh data from the U.S. Energy Information Administration (EIA) on Wednesday revealed a significant drop in domestic crude stockpiles, reflecting stronger refinery activity and higher fuel demand.

The oil rally also found support from a declining U.S. dollar. The dollar index dropped to a three-year low following reports that President Donald Trump is preparing to name his preferred candidate to replace Federal Reserve Chair Jerome Powell later this year.

Despite the bullish inventory data and weaker dollar, oil’s upside was tempered by diminishing geopolitical risks. Israeli Prime Minister Benjamin Netanyahu signaled that the recent conflict with Iran may open the door to diplomatic opportunities. Meanwhile, Trump praised the swift resolution of hostilities and indicated the U.S. would likely engage Iran in talks next week aimed at curbing its nuclear program.

With demand climbing and inventories tightening, oil may remain supported in the near term. However, the potential easing of geopolitical tensions and the likelihood of diplomatic engagement with Iran could contain price volatility, even as supply risks persist beneath the surface.

U.S. equities advanced on Thursday, with the US 500 ending just shy of a new all-time closing high, driven by a strong rally in semiconductor stocks. Investor optimism around accelerated adoption of artificial intelligence (AI) continued to buoy the broader tech sector.

The day’s gains came after a mixed session on Wednesday, during which major indexes paused a two-day rally as markets weighed the impact of a ceasefire between Israel and Iran and comments from Federal Reserve Chair Jerome Powell.

Semiconductors led the market higher, with Nvidia hitting fresh record highs, extending its rally to nearly 40% since early April when market volatility surged following the announcement of new reciprocal tariffs by the Trump administration.

Despite upbeat earnings, macroeconomic concerns lingered. Final data confirmed that the U.S. economy contracted by an annualized 0.5% in Q1 2025—the first quarterly decline since 2022—revised down from a 0.2% drop previously. The slowdown was attributed in part to rising trade barriers, including sweeping tariffs imposed earlier this year.

Labor market data painted a mixed picture. Weekly jobless claims declined by 10,000 to 236,000, but economists warn that June’s unemployment rate may edge higher as displaced workers face longer job searches.

Investors are now turning their focus to the May Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, which is due Friday and may provide further clarity on the timing of future rate moves.

With tech momentum holding strong and market sentiment riding high on AI optimism, the S&P 500 is once again testing record levels. Still, looming economic concerns, trade uncertainty, and potential political disruption at the Fed may keep volatility elevated in the weeks ahead.