Tech Stocks Retreat as Fed Outlook Sparks Caution

The euro fell against the dollar on Wednesday, with EUR/USD pair ending the session 0.62% lower. The move came as the greenback regained traction, supported by robust U.S. housing data and cautious remarks from Federal Reserve Chair Jerome Powell.

Powell reiterated the Fed’s balanced dual mandate, emphasizing that policymakers remain attentive to both inflation risks and employment pressures. He noted monetary policy is “modestly restrictive” yet “well positioned” to adapt, dampening market hopes of aggressive rate cuts. Investors still anticipate at least two reductions by year-end, but Fed officials continue to push back against frontloading policy easing.

Fresh U.S. data provided additional support to the dollar. New Home Sales surged 20.5% in August to 0.8 million units, sharply beating expectations of 0.65 million and rebounding from July’s 0.664 million. The upbeat report helped offset the dollar’s losses earlier in the week following weaker S&P Global PMI figures.

Meanwhile, the euro struggled under the weight of softer sentiment data and renewed fiscal concerns. Germany’s September IFO Business Climate index slipped to 87.7, its lowest in four months, underscoring a faltering recovery. Both the Current Assessment (85.7) and Expectations (89.7) components disappointed forecasts, reflecting rising pessimism among German firms. In France, Prime Minister Sébastien Lecornu signaled openness to new taxes on top earners and corporations, adding to pressure on the single currency.

Looking ahead, markets are watching a packed U.S. calendar, including Initial Jobless Claims, the final Q2 GDP estimate, and August Durable Goods Orders. In Europe, Germany’s GfK Consumer Confidence Survey for October will offer fresh insight into household sentiment.

Gold prices slipped on Wednesday, retreating from the all-time high reached in the previous session, as a firmer U.S. dollar and rising Treasury yields pressured bullion. Traders remained cautious ahead of key U.S. economic releases that could shape the Federal Reserve’s policy outlook.

The U.S. dollar index gained on Wednesday, making bullion more expensive for buyers using other currencies, while benchmark 10-year Treasury yields also ticked higher.

The Fed has maintained a cautious stance, with Chair Jerome Powell reiterating that policymakers must balance the risks of persistent inflation against a cooling labor market. Markets are currently pricing in two more 25 bp rate cuts this year — one in October with a 94% probability and another in December with a 77% chance, according to the CME FedWatch tool.

Geopolitical tensions also remain in focus after Ukraine reported overnight strikes on two oil pumping stations in Russia’s Volgograd region. Gold often benefits during periods of uncertainty and in lower interest-rate environments, given its role as a non-yielding safe-haven asset.

Oil prices surged on Wednesday to their highest levels in weeks after U.S. crude inventories unexpectedly declined, amplifying concerns over tightening global supplies amid disruptions in Iraq, Venezuela, and Russia.

Data from the U.S. Energy Information Administration showed crude stocks fell by 607,000 barrels last week, defying expectations for a 235,000-barrel build. The draw, though smaller than the 3.8 million-barrel decline reported by the American Petroleum Institute, underscored firm demand alongside tighter supplies.

Geopolitical risks also fueled bullish sentiment. Ukraine said it struck two oil pumping stations in Russia’s Volgograd region overnight, prompting a state of emergency in Novorossiisk, a key Black Sea port and major hub for oil and grain exports. Russia is already facing shortages of certain fuel grades as drone attacks disrupt refinery operations, curbing output and export capacity.

Moscow’s finance ministry separately proposed raising its value-added tax to 22% from 20% in 2026 to fund military spending, while Washington signaled stronger support for Kyiv. President Donald Trump suggested Ukraine could reclaim occupied territories and urged European nations to accelerate efforts to phase out Russian energy.

Elsewhere, developments across major producers added to supply jitters. Chevron scaled back oil exports from Venezuela due to U.S. permit issues, while Iran moved to preserve sales to China amid looming U.N. sanctions tied to its nuclear program. Iran, OPEC’s third-largest producer last year, remains under pressure as international negotiations falter.

Despite progress toward restarting Kurdish oil exports, after companies in Iraqi Kurdistan reached agreements in principle with federal and regional authorities, Iraq remains a critical variable. The country was OPEC’s second-largest crude producer in 2024, making any delays in export resumption a potential driver of volatility.

U.S. stocks closed lower for a second straight session on Wednesday, dragged down by continued weakness in AI-linked names and renewed caution over the Federal Reserve’s policy outlook after remarks from Chair Jerome Powell.

Technology shares tied to artificial intelligence weighed on the broader market. Nvidia and Oracle extended recent declines, while Micron Technology fell despite posting another quarter of growth supported by AI-driven chip demand.

In China, Alibaba drew attention after unveiling its most advanced AI model to date, Qwen3-Max, alongside a pledge to boost infrastructure investment in support of the technology.

Market sentiment remained fragile following Powell’s comments earlier in the week. Speaking in Rhode Island, he acknowledged slowing economic growth and a cooling labor market, while stressing inflation remains above the Fed’s 2% target. Powell emphasized the need for a cautious, data-dependent approach, warning that premature or aggressive rate cuts could reignite inflationary pressures.

Friday’s release of the Personal Consumption Expenditures (PCE) index — the Fed’s preferred inflation gauge — will be closely watched, with headline inflation expected to hold steady and core inflation remaining above target.