Markets Brace for Key Inflation Data and Bank Earnings

The euro traded modestly higher against the US Dollar on Friday, with EUR/USD hovering around 1.1430 during the early Asian session. The pair was supported by a softer greenback as investors increased their expectations for further European Central Bank (ECB) interest rate hikes amid persistent inflation concerns and renewed geopolitical uncertainty.

The ECB's latest meeting accounts, released on Thursday, showed that policymakers were presented with projections indicating inflation would remain above the central bank's target into next year despite the equivalent of nearly three additional rate hikes. After raising interest rates at its June meeting, the ECB is now widely expected to deliver two more increases over the next 12 months as it seeks to contain inflationary pressures, including those driven by higher energy prices linked to the Iran conflict.

Market expectations for additional ECB tightening have strengthened in recent days as hopes for a US-Iran agreement to end the conflict have faded. The prospect of prolonged geopolitical tensions has reinforced expectations that the ECB may need to keep monetary policy restrictive for longer, providing further support for the single currency.

Looking ahead, traders will closely monitor developments surrounding the US-Iran conflict. Any escalation in tensions could boost demand for safe-haven assets, potentially weighing on EUR/USD. However, a US official said on Thursday that Washington remains committed to the memorandum of understanding with Iran, despite President Donald Trump's remarks earlier this week that the proposed framework agreement to end the conflict was "over.

Gold prices hovered just above the $4,100 mark on Friday after recovering from a modest dip during the Asian session, although the precious metal continued to trade without strong directional momentum. A weaker US Dollar provided underlying support following the release of the Federal Reserve's less hawkish June meeting minutes, but expectations for further policy tightening and ongoing geopolitical tensions kept gains in check.

The minutes from the Federal Open Market Committee's (FOMC) June 16–17 meeting showed policymakers remained divided over the future path of interest rates. Reflecting that outlook, the CME FedWatch Tool continues to show markets pricing in a high probability of at least one Federal Reserve rate hike before the end of 2026.

Geopolitical developments also remained in focus. Tensions between the United States and Iran intensified after the US Central Command announced airstrikes targeting Iranian military infrastructure, including air defense systems, missile sites and naval logistics facilities.

However, market sentiment improved later after US President Donald Trump said Iran had reached out to pursue a deal with Washington. A White House official also reiterated that the United States remains committed to the existing memorandum of understanding with Tehran, offering investors some hope that diplomatic efforts could continue despite the recent escalation.

The conflicting signals have left investors cautious, with gold struggling to attract sustained buying interest despite the weaker dollar.

Oil prices edged lower in early Friday trading but remained on course for solid weekly gains as renewed military exchanges between the United States and Iran kept supply risks in focus. However, concerns that rising inflation could dampen global fuel demand limited further upside.

Geopolitical tensions escalated after Iranian armed forces launched attacks on US military facilities in Gulf states on Thursday in retaliation for American strikes on military targets in Iran's southern coastal and eastern provinces. Iranian media also reported multiple explosions across southern Iran, including in Bushehr, home to one of the country's nuclear power plants, adding to concerns over regional stability.

The renewed fighting has further delayed the full reopening of the Strait of Hormuz, one of the world's most important energy shipping routes, through which roughly one-fifth of global oil and gas supplies flowed before the conflict began. Continued disruptions to traffic through the strategic waterway have kept supply concerns elevated and supported oil prices.

Meanwhile, US economic data showed initial jobless claims declined last week, suggesting the labor market remains resilient despite signs of slower hiring. In China, producer price inflation accelerated to its highest level in four years in June, increasing pressure on manufacturers as weak domestic demand continued to limit pricing power, highlighting ongoing concerns about the outlook for global oil demand.

US stocks finished higher on Thursday, led by another strong advance in semiconductor shares, as investors continued to favor artificial intelligence-related stocks despite persistent geopolitical tensions in the Middle East.

Market sentiment remained firmly anchored by optimism surrounding artificial intelligence investment, with investors largely looking past geopolitical developments. Analysts noted that robust spending on AI infrastructure has continued to underpin equity markets, although concerns are gradually building over rising inflation, softer consumer demand and signs of a cooling labor market that could eventually challenge the current growth outlook.

Technology sentiment also received a boost from reports that Meta Platforms plans to begin production of its custom artificial intelligence chips in September while significantly expanding its computing capacity next year. In addition, enthusiasm surrounding SK Hynix's highly anticipated US stock listing supported the broader semiconductor sector, with reports indicating exceptionally strong investor demand for the offering.

Despite the upbeat performance in technology shares, investors continued to monitor developments in the Middle East. The conflict between the United States and Iran intensified after US forces carried out strikes on roughly 170 Iranian military targets in response to attacks on commercial oil tankers.

However, market sentiment improved after President Trump said Iran had contacted the United States seeking a new agreement. Although he questioned whether Tehran would honor any future deal, his remarks eased fears of an immediate escalation into a broader conflict.

Among individual companies, PepsiCo shares fell despite reporting second-quarter revenue that exceeded analysts' expectations, as earnings came in slightly below forecasts. Investors are now turning their attention to the upcoming second-quarter earnings season, with markets expected to remain focused on corporate guidance, AI-related spending trends and further developments surrounding US-Iran relations.