Gold prices fell in European trading on Thursday, heading for their first loss in three sessions, pressured by a rebound in the US dollar against a basket of global currencies as military tensions between the United States and Iran continued to intensify.

US inflation data released this week reduced expectations that the Federal Reserve will raise interest rates this year, while investors await further evidence on the future path of US monetary policy.

The Price

• Gold prices fell 0.9% to $4,023.06 an ounce, from the opening level of $4,060.45, after reaching an intraday high of $4,066.87.

• At Wednesday's settlement, gold prices rose 0.2%, posting their second consecutive daily gain as the metal continued to recover from a two-week low of $3,983.64 an ounce.

• In addition to bargain buying, gold received support from a weaker US dollar following the release of disappointing economic data in the United States.

US dollar

The dollar index rose 0.1% on Thursday as it attempted to recover from a one-month low, reflecting renewed strength in the US currency against a basket of major and minor currencies.

Demand for the dollar as a safe-haven asset increased as military strikes between the United States and Iran continued to escalate, while reduced shipping traffic through the Strait of Hormuz intensified concerns over possible disruptions to global oil supplies.

Latest developments in the Iran conflict

• The United States launched a new wave of airstrikes targeting Iranian coastal defense sites and missile launchers.

• Iran described the current confrontation as an "existential war" and said it would continue responding to US operations, while threatening to broaden measures that could affect regional energy exports.

• The US fleet, consisting of 20 warships and hundreds of fighter aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• The number of ships passing through the Strait of Hormuz fell to just seven, down from 13 the previous day, with no supertankers or liquefied natural gas carriers transiting the waterway.

• US President Donald Trump said Iran "wants to reach a settlement," but stressed that negotiations can only resume if Tehran changes its behavior.

• Iran, meanwhile, maintains that it will not return to any agreements while US military operations continue.

US interest rates

• Data released this week showed that both consumer and producer prices in the United States slowed more than expected in June as energy prices declined.

• Senior Federal Reserve officials welcomed the softer June inflation readings but said more such reports would be needed before concluding that price pressures are genuinely easing.

• Following the data, CME Group's FedWatch tool showed that the probability of the Federal Reserve leaving interest rates unchanged at its July meeting rose from 59% to 90%, while the probability of a 25-basis-point rate hike fell from 41% to 10%.

• The probability of the Fed keeping rates unchanged at its December meeting also increased from 10% to 25%, while the probability of a 25-basis-point rate hike declined from 90% to 75%.

• Investors continue to monitor incoming US economic data and comments from Federal Reserve officials to reassess those expectations.

Gold outlook

Jigar Trivedi, Senior Research Analyst at IndusInd Securities, said gold is declining as continued attacks in the Middle East drive oil prices sharply higher this week, keeping inflation concerns alive.

Trivedi added that June's inflation figures did not reflect the impact of the latest escalation in the US-Iran conflict, as the temporary peace agreement reached last month has effectively collapsed.

SPDR fund

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 2.57 metric tons on Wednesday to 1,001.88 metric tons, the lowest level since July 2.

The British pound weakened against a basket of major currencies during European trading on Thursday, pulling back from a two-month high against the US dollar as investors engaged in profit-taking following its strongest daily gain since March, supported by growing optimism over recent political developments in the United Kingdom.

The recent rise in oil prices has intensified inflationary pressure on Bank of England policymakers, reinforcing expectations that UK interest rates could increase in the near term as investors await another round of key economic data.

The Price

• The pound slipped about 0.15% against the US dollar to $1.3520, from the day's opening level of $1.3537, after reaching an intraday high of $1.3545.

• Sterling climbed 1.1% against the US dollar on Wednesday, marking its second consecutive daily gain and its strongest one-day advance since March 19, while reaching a two-month high of $1.3558.

Political developments

• Andy Burnham moved closer to becoming the UK's next prime minister amid growing expectations that the incoming government will pursue a more stable fiscal policy, boosting investor confidence in British assets.

• Reports also suggested that Shabana Mahmood is set to become Chancellor of the Exchequer, a development welcomed by markets, as she is viewed as more fiscally disciplined than some of the other candidates previously considered for the role.

• Investors believe the new UK government is likely to maintain fiscal discipline and limit public spending and borrowing.

US dollar

The US Dollar Index rose 0.1% on Thursday as the greenback attempted to recover from a one-month low against a basket of major currencies.

Demand for the US dollar as a safe-haven asset increased as military exchanges between the United States and Iran continued to escalate, while shipping activity through the Strait of Hormuz remained subdued, heightening concerns over potential disruptions to global oil supplies.

Iran conflict updates

• The United States launched a new wave of airstrikes targeting Iranian coastal defense positions and missile launch sites.

• Iran declared that the current confrontation represents an "existential war" and pledged to continue responding to US military operations while warning that it could expand measures affecting regional energy exports.

• The US naval fleet, consisting of 20 warships and hundreds of military aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• Traffic through the Strait of Hormuz declined to just seven vessels, down from 13 the previous day, with supertankers and LNG carriers completely absent from the shipping lane.

• US President Donald Trump said Iran "wants to reach a settlement," but stressed that any return to negotiations would require a change in Tehran's behavior.

• Iran, meanwhile, insists it will not return to any previous understandings as long as US military operations continue.

UK interest rates

Rising oil prices have pushed market pricing for a Bank of England interest rate hike at the July meeting above 35%.

UK economic growth

To reassess those expectations, investors are awaiting the release of UK economic growth data later today, which could influence the Bank of England's monetary policy outlook.

Monthly GDP data is due at 06:00 GMT and is expected to show growth of 0.1% in May, following a 0.1% contraction in April.

The New Zealand dollar weakened against a basket of major currencies during Asian trading on Thursday, pulling back from a four-week high against its US counterpart and heading for its first loss in three sessions as investors locked in recent gains. The move also coincided with a modest recovery in the US dollar amid ongoing military strikes between the United States and Iran.

The recent rally in oil prices has increased inflationary pressure on policymakers at the Reserve Bank of New Zealand, reinforcing expectations that the central bank could raise interest rates at its September meeting.

The Price

• The New Zealand dollar fell about 0.3% against the US dollar to 0.5834, from the day's opening level of 0.5850, after reaching an intraday high of 0.5854.

• The kiwi rose 0.65% against the US dollar on Wednesday, marking its second consecutive daily gain and reaching a four-week high of 58.63 US cents.

• The US dollar remained under pressure against major currencies following another round of weaker-than-expected US inflation data, which further reduced expectations of a Federal Reserve interest rate hike this year.

US dollar

The US Dollar Index rose 0.1% on Thursday as the greenback attempted to recover from a one-month low against a basket of major currencies.

Demand for the US dollar as a safe-haven asset increased as military exchanges between the United States and Iran continued to escalate, while shipping activity through the Strait of Hormuz remained subdued, heightening concerns over potential disruptions to global oil supplies.

Iran conflict updates

• The United States launched a new wave of airstrikes targeting Iranian coastal defense positions and missile launch sites.

• Iran declared that the current confrontation represents an "existential war" and pledged to continue responding to US military operations while warning that it could expand measures affecting regional energy exports.

• The US naval fleet, consisting of 20 warships and hundreds of military aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• Traffic through the Strait of Hormuz declined to just seven vessels, down from 13 the previous day, with supertankers and LNG carriers completely absent from the shipping lane.

• US President Donald Trump said Iran "wants to reach a settlement," but stressed that any return to negotiations would require a change in Tehran's behavior.

• Iran, meanwhile, insists it will not return to any previous understandings as long as US military operations continue.

New Zealand interest rates

• Following its latest meeting, the Reserve Bank of New Zealand said that further interest rate increases may be required, although the timing and magnitude of any future moves will depend on incoming economic data, inflation trends, and the strength of economic activity.

• Markets continue to price in a greater than 90% probability of a 25-basis-point interest rate increase at the September policy meeting.

• Investors will closely monitor upcoming New Zealand economic data, including inflation, employment, and GDP figures, for further clues on the policy outlook.

US stocks closed higher on Wednesday after weaker-than-expected inflation data and another round of strong corporate earnings at the start of the second-quarter reporting season boosted investor confidence.

The three major US indexes ended the session with modest gains despite continued weakness in semiconductor stocks, while consumer retail and travel & leisure shares led the market higher.

Bank and technology stocks lead gains as PayPal jumps on takeover report

PayPal surged 17.2% after Reuters reported that Stripe and private equity firm Advent International had submitted a joint bid to acquire the company for $60.50 per share, representing a premium of about 28% over Tuesday's closing price.

Meanwhile, the US banking earnings season continued to deliver positive surprises, with both BlackRock and Morgan Stanley reporting quarterly results that exceeded market expectations.

BlackRock shares climbed 6.6%, while Morgan Stanley finished the session 0.4% higher.

"Everything coming out of the banks looks positive, and I wouldn't be surprised if we see another exceptional quarter," said Mike Dickson, Head of Research and Quantitative Strategies at Horizon Investments in Charlotte, North Carolina.

According to the latest LSEG data, analysts expect S&P 500 companies to post year-over-year earnings growth of 23.7% in the second quarter.

At the close:

The Dow Jones Industrial Average rose 150.91 points, or 0.29%, to 52,659.18.

The S&P 500 gained 28.83 points, or 0.38%, to finish at 7,572.42, while the Nasdaq Composite advanced 162.22 points, or 0.62%, to close at 26,269.23.

Among the 11 major S&P 500 sectors, communication services posted the strongest gains, while utilities were the weakest performer.

Softer inflation boosts optimism, but geopolitical risks remain

Markets also received support after the Producer Price Index (PPI) came in below expectations for a second consecutive day, as Federal Reserve Chair Kevin Warsh continued his second day of testimony before the Senate Banking Committee.

Combined with Tuesday's Consumer Price Index (CPI) report, the PPI data suggested inflation continued to ease last month, although it remained elevated due to the economic impact of the conflict involving the United States, Israel, and Iran. The data reduced pressure on the Federal Reserve to raise interest rates in the near term.

"My biggest concern before this week was that inflation would come in above 3.8%, but instead it slowed to 3.5%. That gives the Federal Reserve room to keep interest rates unchanged or even cut them later this year, which is positive news for markets," said Lauren Goodwin, Chief Market Strategist at Founders 100 ETF in Dallas.

According to CME FedWatch data, markets are now pricing in just a 10.2% probability of a 25-basis-point rate hike at the conclusion of the Federal Reserve's meeting later this month, down from 31% a week earlier.

Despite the encouraging inflation figures, analysts noted that the data reflected last month's conditions, when investors still believed a diplomatic resolution to the Middle East conflict was within reach.

That optimism has faded in recent days as renewed US-Iran airstrikes and growing tensions over control of the Strait of Hormuz have raised concerns that higher energy prices could reignite inflationary pressures.

Separately, Federal Reserve Governor Lisa Cook said she is "prepared to act" if inflation fails to continue moderating in the months ahead.

Market breadth remained positive, with advancing stocks outnumbering decliners by 1.5-to-1 on the New York Stock Exchange, where 269 stocks hit new 52-week highs and 124 reached new lows.

On the Nasdaq, 2,647 stocks advanced while 2,107 declined. Total trading volume across US exchanges reached 16.27 billion shares, compared with the 20-session average of 21.40 billion.