Gold & Crude Surge on Middle East Crisis; Tech Stocks Rebound

The EUR/USD pair is trading in a positive territory during Wednesday's early European session, as investors continue to favour the Euro amid expectations that the European Central Bank (ECB) will maintain a restrictive policy stance. However, further upside may remain limited as escalating geopolitical tensions in the Middle East underpin demand for the US Dollar.

Market participants widely expect the ECB to leave its deposit facility rate unchanged at 2.25% when it announces its monetary policy decision on Thursday. While policymakers are anticipated to pause after June's rate increase, investors continue to price in a more hawkish policy outlook, reflecting concerns that inflationary pressures could remain elevated.

Money markets currently imply the ECB deposit rate will rise to around 2.66% by December and approximately 2.73% by February 2027, compared with the current 2.25%. Traders have also fully priced in another quarter-point rate hike at the ECB's September meeting, according to Reuters.

Despite the supportive monetary policy backdrop for the Euro, geopolitical risks could cap the pair's advance. Safe-haven demand for the US Dollar has strengthened as tensions between the United States and Iran continue to intensify. According to the BBC, the US carried out strikes on Iran for an 11th consecutive day on Tuesday after Tehran warned Washington against targeting its nuclear facilities.

Iran's top military command warned that it would broaden its military response and target US and allied interests across the region if the United States attacks Iranian nuclear sites, raising concerns that the conflict could escalate further and boosting demand for defensive assets such as the Greenback.

Gold prices remain well supported near a two-week high during Wednesday's European session, benefiting from a weaker US Dollar as renewed hopes for diplomatic engagement between the United States and Iran reduce demand for the Greenback. However, the precious metal's upside appears limited as rising oil prices and escalating Middle East tensions continue to reinforce expectations that the Federal Reserve could keep interest rates higher for longer.

US Secretary of State Marco Rubio reiterated that the United States is willing to continue diplomatic talks, while Iran's Interior Minister Eskandar Momeni urged Pakistan to maintain its mediation efforts. Reports also suggest that international mediators are working to bring both sides back to the negotiating table.

Despite the diplomatic optimism, military tensions remain elevated. The US military confirmed that it carried out an 11th consecutive night of strikes on Iranian targets early Wednesday, focusing on aircraft hangars and drone storage facilities. Iran has continued its military response, launching attacks against US military assets in Bahrain, Kuwait and Jordan.

The escalating hostilities have heightened concerns over global energy supplies, pushing crude oil prices to their highest levels since mid-June. Higher energy costs have revived inflation concerns and strengthened expectations that the Federal Reserve may need to maintain a restrictive monetary policy.

Oil prices climbed for a fourth consecutive session on Wednesday, extending recent gains as escalating military conflict in the Middle East heightened concerns over global supply disruptions. Investors remained focused on the risk of tighter crude supplies after fresh US strikes on Iranian targets and growing threats to key regional shipping routes.

The latest gains came after the US military launched an 11th consecutive night of strikes on Iranian military infrastructure. The attacks followed Iran's strikes on US facilities in Bahrain, Kuwait and Jordan, underscoring the continued escalation of hostilities across the region.

Supply concerns intensified after Yemen's Iran-backed Houthi movement threatened to target vessels transporting Saudi crude through the Bab el-Mandeb Strait and announced a naval blockade against Saudi Arabia. The strategic waterway has become increasingly important for Saudi oil exports as traffic through the Strait of Hormuz has declined sharply following the collapse of the US-Iran ceasefire earlier this month.

The security risks have already begun to disrupt shipping activity. Three oil tankers carrying Saudi crude to China and India reportedly reversed course in the Red Sea on Tuesday, opting to transit through the Suez Canal instead of sailing near the Yemeni coastline after the Houthi warnings.

Meanwhile, industry data from the American Petroleum Institute indicated that US crude oil and distillate inventories increased last week, while gasoline stockpiles declined. Investors now await official inventory figures from the US Energy Information Administration later on Wednesday for further clues on the outlook for supply and demand.

Wall Street closed firmly higher on Tuesday as a strong rebound in semiconductor stocks outweighed concerns over escalating tensions in the Middle East and renewed trade disputes. Investors also positioned themselves ahead of a busy earnings calendar featuring several major technology companies.

Semiconductor shares staged a sharp recovery after last week's sell-off, lifting broader equity markets. The Philadelphia Semiconductor Index jumped 5.2%, marking its second consecutive day of gains after having fallen more than 20% from its late-June record high.

Among individual stocks, Sandisk surged 14.3%, Western Digital climbed 12.75%, and Micron Technology added 11.89%, making them the top performers within the S&P 500 as investors piled back into semiconductor names.

Market participants largely looked past President Donald Trump's announcement of 50% tariffs on a broad range of Canadian imports, as well as renewed geopolitical tensions in the Middle East.

Investors instead shifted their attention to the upcoming earnings season, with results from Alphabet, Intel and Texas Instruments expected to provide fresh insight into the outlook for the technology sector.

Elsewhere, 3M climbed 7.17% after raising its full-year profit forecast, while Hasbro gained 8.8% after increasing its annual revenue and earnings outlook on stronger demand for its digital gaming business and Magic: The Gathering franchise.

Market breadth was positive, with advancing stocks comfortably outnumbering decliners on both the New York Stock Exchange and the Nasdaq. Trading activity remained relatively light, however, with total volume below the 20-session average as investors awaited key corporate earnings and further developments on the geopolitical front.