Tech Sell-Off Triggers Global Market Decline Amid Inflation Fears

EUR/USD traded slightly higher early on Friday, hovering near the 1.1380 area during the Asian session, as the US Dollar remained under pressure. However, gains in the common currency could remain limited as escalating tensions in the Middle East continue to support oil prices, reinforcing inflation concerns and raising expectations that the Federal Reserve may need to tighten monetary policy further.

Market pricing reflects a growing possibility of additional Fed action, with the CME FedWatch Tool indicating a 35.8% probability of a rate increase at the upcoming meeting and an 82.1% chance of at least one 25-basis-point hike by September.

Geopolitical risks remain elevated after Yemen's Iran-backed Houthi rebels reportedly attacked two Saudi oil tankers in the Red Sea, accusing them of violating a naval blockade. The United States responded with a 13th consecutive night of strikes on Iranian targets, while President Donald Trump warned of severe military retaliation against both Iran and the Houthis if attacks persist, saying he is considering an unprecedented military operation.

Meanwhile, investors digested the European Central Bank's latest policy decision. As widely expected, the ECB left its benchmark interest rates unchanged after raising them by 25 basis points in June. Policymakers reiterated their commitment to returning inflation to the 2% medium-term target but warned that uncertainty remains elevated and that the full inflationary impact of higher energy prices has yet to be reflected in the economy. The deposit facility rate was maintained at 2.25%, while the main refinancing and marginal lending rates remained at 2.40% and 2.65%, respectively.

Gold prices extended their decline for a second consecutive session on Friday, slipping below the $4,050 level during Asian trading as rising inflation concerns and a firmer US Dollar continued to dampen demand for the precious metal. Persistent geopolitical tensions in the Middle East have driven crude oil prices higher, reinforcing expectations that the Federal Reserve may keep interest rates elevated or tighten policy further, reducing the appeal of non-yielding assets such as gold.

Geopolitical risks intensified after the US military carried out a 13th consecutive night of strikes on Iranian targets. The conflict has widened across the region, with Iran and its allies reportedly launching retaliatory attacks against US-linked military facilities in Kuwait, Bahrain, and Jordan. Meanwhile, Yemen's Iran-backed Houthi rebels attacked two Saudi oil tankers in the Red Sea, describing the operation as part of a naval blockade. The renewed disruption to key shipping routes has heightened concerns over global energy supplies, pushing crude oil prices to their highest levels since mid-June.

US Initial Jobless Claims fell to their lowest level since September 1969, highlighting the resilience of the labour market and giving policymakers greater room to prioritise inflation over economic growth.

Trade developments also remained in focus after President Donald Trump announced new tariffs ranging from 10% to 12.5% on imports from 60 major US trading partners, covering nearly all US imports. The move has revived concerns over a broader global trade conflict, boosting demand for the US Dollar as a safe-haven asset.

Oil prices edged lower during Friday's Asian session but remained on course to post a third consecutive week of strong gains, as escalating tensions in the Middle East and ongoing supply disruption concerns continued to support the energy market.

Market sentiment continued to be dominated by geopolitical developments after Yemen's Iran-backed Houthi rebels attacked Saudi oil tankers in the Red Sea, intensifying concerns over global energy supplies. The strikes targeted vessels passing through the Bab el-Mandeb Strait, adding another key shipping route to the growing list of regional flashpoints.

The latest incident comes as military exchanges between the United States and Iran continue for a second consecutive week, while uncertainty surrounding traffic through the Strait of Hormuz has further heightened fears of supply disruptions. President Donald Trump warned of severe military retaliation against both Iran and the Houthis following the attacks, while reports indicated that Iran had rejected a US-backed ceasefire proposal, reducing hopes for a diplomatic breakthrough.

The Houthis' attacks have increased pressure on Saudi Arabia's export routes after the kingdom had relied on the Bab el-Mandeb corridor to mitigate risks associated with the Strait of Hormuz. As a result, concerns over disruptions to Middle Eastern oil shipments have intensified, contributing to expectations of tighter global crude supplies during July.

The sustained rise in oil prices has also reinforced fears of renewed inflationary pressures, increasing the likelihood that major central banks could maintain restrictive monetary policies for longer. Investors continue to monitor geopolitical developments closely, as further escalation in the region could keep energy markets well supported despite Friday's modest pullback.

US equities closed sharply lower on Thursday as disappointing investor reactions to earnings from Alphabet and Tesla, combined with rising oil prices and renewed geopolitical tensions, triggered broad selling across major indices.

Investor sentiment remained fragile as Brent crude climbed above $100 per barrel for the first time since May, driven by escalating conflict in the Middle East. Higher energy prices renewed inflation concerns and reinforced expectations that the Federal Reserve could keep interest rates elevated for longer.

Despite the broader market weakness, economic data highlighted the resilience of the US economy. Initial Jobless Claims fell to their lowest level since 1969, suggesting that labour market conditions remain strong and giving policymakers greater flexibility to focus on inflation risks.

Technology shares led the decline after quarterly results from Alphabet and Tesla failed to reassure investors over the massive spending required to support future AI growth. Alphabet shares fell more than 7%, while Tesla plunged 14.57%, making them among the worst-performing stocks on Nasdaq. Investors remained concerned that soaring AI-related spending, rising operating costs, and pressure on cash flows may delay meaningful returns on these investments.

Outside the technology sector, earnings provided some support. Defense contractors RTX and Lockheed Martin advanced after both raised their full-year guidance, benefiting from increased defense spending linked to the Middle East conflict. Honeywell also gained after reporting strong order growth and an expanding backlog. In contrast, T-Mobile US declined sharply after weaker-than-expected quarterly revenue and softer subscriber growth.

Attention now turns to Intel's quarterly earnings, with investors looking for signs that the chipmaker is making progress in narrowing the gap with competitors benefiting from the rapid expansion of artificial intelligence infrastructure.