Gold prices rose during European trading on Friday in an attempt to recover from a two-week low, supported by bargain buying after recent losses.

Despite the rebound, bullion remained on track to post a second consecutive weekly decline as a stronger US dollar and rising oil prices continued to weigh on the market amid escalating military tensions between the United States and Iran.

US inflation data released this week prompted markets to scale back expectations of a Federal Reserve interest rate hike this year, with investors now awaiting additional economic data and comments from Fed officials for further clues on the future path of US monetary policy.

The Price

• Gold rose 0.8% to $4,008.86 an ounce, after opening at $3,976.12 and touching an intraday low of $3,970.89.

• At Thursday's settlement, gold fell 2.1% to a two-week low of $3,969.34 an ounce following stronger-than-expected US jobless claims data.

Weekly performance

For the week so far, with trading set to conclude at Friday's settlement, gold prices were down around 2.75%, leaving the precious metal on course for a second consecutive weekly loss.

US dollar

The dollar index gained around 0.2% on Friday, extending gains for a second straight session as the US currency strengthened against a basket of major and minor currencies.

Investors continued to favor the dollar as a safe-haven asset as military exchanges between the United States and Iran intensified, while declining shipping traffic through the Strait of Hormuz heightened concerns over potential disruptions to global oil supplies.

Global oil prices

Oil prices rose around 1% on Friday, resuming their advance after a brief pause on Thursday and moving back toward the one-month highs reached earlier this week as military activity between the United States and Iran intensified around the Strait of Hormuz.

Latest developments in the Iran conflict

• The United States launched a fresh wave of airstrikes against targets inside Iran for a sixth consecutive day.

• Iran's Revolutionary Guard responded with retaliatory ballistic missile and drone attacks targeting military bases hosting US forces across the region.

• Iran warned the United States that the Strait of Hormuz represents a "red line," pledging to respond to any attacks on its infrastructure.

• Reports indicated that Tehran is considering broadening its response, including threatening shipping in the Red Sea if US strikes continue.

• 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.

• Recent developments suggest that the temporary de-escalation agreement reached in June has effectively collapsed, with negotiations halted and large-scale military operations resuming.

US interest rates

• Data released this week showed US consumer and producer prices slowed more than expected in June as energy prices declined.

• Senior Federal Reserve officials welcomed June's softer inflation readings but said they would need additional evidence before concluding that price pressures had eased sustainably.

• Following those data, the CME FedWatch Tool showed the probability of the Federal Reserve keeping interest rates unchanged at its July meeting rising from 59% to 90%, while the probability of a 25-basis-point rate hike dropped from 41% to 10%.

• Expectations for rates to remain unchanged through the December meeting also increased from 10% to 25%, while the probability of a quarter-point hike declined from 90% to 75%.

• Investors are now awaiting additional US economic data and further comments from Federal Reserve officials to reassess the outlook for monetary policy.

Gold outlook

Gold attracted modest buying after slipping below the $4,000 level, said Tim Waterer, Chief Market Analyst at KCM Trade.

"Geopolitical risks in the Middle East remain elevated, while inflation concerns and higher bond yields continue to limit the upside for gold prices," he added.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were unchanged on Thursday at 1,001.88 metric tons, the lowest level since July 2.

Oil prices climbed around 2% on Friday as the United States and Iran stepped up their military exchanges across the Gulf, fueling concerns over global shipping after threats to close the Red Sea trade route alongside continued restrictions on traffic through the Strait of Hormuz.

Brent crude futures rose $1.53, or 1.82%, to $85.76 a barrel by 09:51 GMT.

US West Texas Intermediate crude futures gained $1.69, or 2.14%, to $80.64 a barrel.

Both benchmark contracts were on track to post weekly gains of around 13%, with Brent heading for a third consecutive weekly advance and WTI set to record a second straight week of gains.

Supply disruption fears support prices

The collapse of the ceasefire between the United States and Iran has reduced oil flows through the Strait of Hormuz, while Tehran has urged Yemen's Houthis to shut down the Red Sea shipping route if the United States launches attacks on Iranian energy infrastructure.

Analysts at Commerzbank said shipping traffic through the Red Sea had increased significantly since the conflict with Iran began, reflecting the rerouting of Saudi oil exports away from the Strait of Hormuz.

"If the Bab al-Mandab Strait is blockaded following further escalation, oil prices are likely to rise even further," the analysts said.

On the ground, Iran said it launched fresh attacks on US facilities across the Middle East on Friday, including its first direct strike on targets in Syria, following a sixth consecutive night of US attacks on Iranian military installations.

Meanwhile, US Central Command (CENTCOM) said on Thursday that American forces had begun a new wave of strikes aimed at further degrading Iran's military capabilities.

Warnings over energy security

International Energy Agency Executive Director Fatih Birol said during an event hosted by the Council on Foreign Relations in Washington on Thursday that oil supply security remains a critical issue.

"We should be concerned, and I am concerned, if the situation does not improve over the coming weeks," Birol said.

Separately, Qatar's Ministry of Defence said its armed forces intercepted an Iranian missile attack early on Friday, while the country's Interior Ministry reported that a child was injured by shrapnel from missile interceptions.

Kuwait's Ministry of Electricity also said one of the country's power generation and desalination plants was struck during an Iranian attack.

The US dollar held broadly steady on Friday but remained on course for a weekly decline after softer US inflation data prompted traders to scale back expectations of an imminent interest rate hike by the Federal Reserve.

Escalating tensions in the Middle East, however, limited pressure on the US currency by strengthening safe-haven demand.

The confrontation between Iran and the United States intensified throughout the week, undermining the ceasefire reached last month and driving investors toward the dollar as oil prices climbed close to their highest levels in a month.

Euro and sterling head for weekly gains

The euro was little changed at $1.145 and was on track to post a weekly gain of around 0.3%.

Sterling edged lower to $1.346 but remained set for a weekly increase of 0.5%, marking a third consecutive week of gains as concerns over Britain's fiscal position eased.

The Japanese yen strengthened slightly to ¥162.26 per dollar but remained close to the 40-year low of ¥162.84 reached earlier this month.

Traders remained alert to the possibility of intervention in the foreign exchange market after Japanese Finance Minister Satsuki Katayama reiterated that the government was prepared to take decisive action if necessary.

The dollar index, which measures the US currency against a basket of six major currencies, was unchanged at 100.69 but was heading for a weekly decline of around 0.3%.

The index had fallen to a one-month low earlier in the week as expectations of a near-term interest rate hike faded, although safe-haven inflows helped support the dollar.

"There has been no easing in the pace of escalation in the Middle East, and that continues to limit investors' willingness to sell the dollar," said Derek Halpenny, Head of Research for Global Markets EMEA at MUFG.

"US economic data released yesterday also helped curb selling pressure on the US currency," he added.

July rate hike expectations decline

Data released on Thursday showed that US retail sales rose only slightly in June, as lower fuel prices reduced receipts at gasoline stations while online spending recorded a sharp increase.

The figures prompted economists to raise their estimates for US economic growth in the second quarter.

Separate data also indicated that the labor market remained stable, reinforcing expectations that the Federal Reserve would keep interest rates unchanged at its meeting later this month after June consumer inflation showed signs of slowing.

Policymakers, however, remain cautious about relying on a single month of improved inflation data following several months in which price pressures moved in the opposite direction.

According to the CME FedWatch Tool, the probability of an interest rate hike at the July meeting fell to 11%, from 25% a week earlier, while markets priced in a cumulative 26 basis points of rate increases by December.

"I don't think a rate hike will be under consideration at the July meeting," said Tani Fukui, Senior Director of Global Economic and Market Strategy at MetLife Investment Management.

"We expect no interest rate increases or cuts during 2026," he added.

Among other currencies, the Australian dollar remained on track for a third consecutive weekly gain despite falling 0.24% on Friday to $0.6981 as risk appetite weakened and global equities declined.

The Chinese yuan, meanwhile, pulled back from a one-month high against the dollar but remained on course for a third consecutive weekly gain.

The euro fell against a basket of major currencies during European trading on Friday, extending losses against the US dollar for a second consecutive session as demand for the US currency strengthened as a safe haven amid growing concerns over a renewed escalation in the Iran conflict.

The latest weakness came as military exchanges between the United States and Iran continued for a sixth consecutive day.

Inflationary pressures have also returned to the forefront for European Central Bank policymakers following the sharp rise in global oil prices this week, increasing the risk that inflation across the eurozone could begin accelerating again.

This has reinforced market expectations that the European Central Bank will continue tightening monetary policy, with the likelihood of an interest rate hike at its September meeting rising further.

The Price

• The euro fell around 0.1% against the dollar to $1.1435, from an opening level of $1.1442, after reaching an intraday high of $1.1448.

• The euro ended Thursday down 0.15% against the dollar, marking its first loss in three sessions as investors took profits following a rise to a four-week high of $1.1483.

US dollar

The dollar index rose 0.1% on Friday, extending gains for a second consecutive session and reflecting continued strength in the US currency against a basket of major and minor currencies.

Investors continued to buy the dollar as a safe-haven asset as military exchanges between the United States and Iran intensified, while declining shipping traffic through the Strait of Hormuz increased concerns over potential disruptions to global oil supplies.

Global oil prices

Oil prices rose more than 0.5% on Friday, resuming gains after Thursday's temporary pause and moving toward the one-month highs reached on Tuesday as military activity between the United States and Iran intensified around the Strait of Hormuz.

Latest developments in the Iran conflict

• The United States launched a fresh wave of airstrikes against targets inside Iran for a sixth consecutive day.

• Iran's Revolutionary Guard responded with retaliatory ballistic missile and drone attacks targeting military bases hosting US forces across the region.

• Iran warned the United States that the Strait of Hormuz represents a "red line," pledging to respond to any attacks on its infrastructure.

• Reports indicated that Tehran is considering broadening its response, including threatening shipping in the Red Sea if US strikes continue.

• 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.

• Recent developments suggest that the temporary de-escalation agreement reached in June has effectively collapsed, with negotiations halted and large-scale military operations resuming.

European interest rates

• As global oil prices climbed, money-market pricing for a 25-basis-point interest rate hike by the European Central Bank at its July meeting rose above 35%.

• Expectations for a quarter-point increase at the ECB's September meeting climbed above 95%.

• Investors are now awaiting additional eurozone data on inflation, unemployment, and wages to reassess the outlook for monetary policy.