Gold prices fell in European trading on Wednesday, resuming the losses that were temporarily halted in the previous session and moving back toward a two-week low, as the inflationary impact of rising oil prices outweighed continued weakness in the US dollar.

Weaker-than-expected US consumer inflation data reduced expectations for additional Federal Reserve rate hikes this year. Investors are now awaiting the June Producer Price Index (PPI) report later today, along with the second day of Federal Reserve Chair Kevin Warsh's semiannual testimony before Congress, for fresh clues on the outlook for monetary policy.

The Price

• Gold prices fell 0.9% to $4,017.47 per ounce, from an opening level of $4,052.98, after reaching an intraday high of $4,062.17.

• Gold settled 1.3% higher on Tuesday, posting its first daily gain in three sessions as bargain buying emerged after prices hit a two-week low of $3,983.64 per ounce.

• In addition to bargain hunting, gold received support after US consumer inflation data came in below expectations.

US Dollar

The US Dollar Index slipped 0.15% on Wednesday, extending its losses for a second consecutive session as the greenback weakened against a basket of major currencies.

US Treasury yields also declined as expectations for a near-term Federal Reserve rate hike eased. Investors are now looking ahead to additional economic data and comments from Fed officials for clearer guidance on the path of monetary policy.

Global Oil Prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third straight session and approaching the one-month high reached on Tuesday, as military strikes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

• The US naval blockade of Iranian ports officially came into effect, with US forces monitoring vessels entering and leaving Iranian ports.

• The United States carried out fresh military strikes targeting Iranian missile systems and air defenses around the Strait of Hormuz, marking another escalation in the crisis.

• Iran announced new drone attacks targeting US-linked bases and facilities across the region while maintaining a heightened state of military readiness.

• Iranian officials said the United States is mistaken if it believes these actions will force Tehran back to the negotiating table.

• US President Donald Trump issued a stern public warning to Tehran, threatening to destroy all Iranian power plants and key bridges "next week" unless Iran agrees to return immediately to negotiations.

US Interest Rates

• Data released on Tuesday showed US consumer inflation slowed more than expected in June, largely due to lower energy prices.

• Senior Federal Reserve officials welcomed the softer June inflation figures but stressed that additional months of similar data would be needed before concluding that inflationary pressures are genuinely easing.

• Following the data, CME Group's FedWatch Tool showed the probability of the Federal Reserve keeping interest rates unchanged at its July meeting rising from 59% to 86%, while the probability of a 25-basis-point rate hike dropped from 41% to 14%.

• Expectations for no change at the December meeting also increased from 10% to 20%, while the probability of a 25-basis-point hike declined from 90% to 80%.

• Investors now await the release of the June US Producer Price Index later today to reassess the outlook for Federal Reserve policy.

Kevin Warsh

At 2:00 p.m. GMT, Federal Reserve Chair Kevin Warsh will continue his semiannual testimony before the Senate Banking Committee in Washington.

During Tuesday's appearance before the House Financial Services Committee, Warsh pledged a sweeping overhaul of Federal Reserve policy aimed at eliminating what he described as the inflation "tax" imposed on the American people.

Gold outlook

Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA, said the market is now largely looking past the Consumer Price Index data, viewing it as a lagging indicator. He added that Trump's continued blockade of shipping through the Strait of Hormuz has driven oil prices higher and is weighing on gold.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased by 2 metric tons on Tuesday, bringing total holdings to 1,004.45 metric tons, rebounding from 1,002.45 metric tons, the lowest level since July 2.

The euro strengthened against a basket of global currencies during European trading on Wednesday, extending gains against the US dollar for a second consecutive session and moving closer to a two-week high, supported by a weaker US dollar following softer-than-expected US inflation data.

As global oil prices continue to climb, inflationary pressures on European Central Bank policymakers are resurfacing, reinforcing expectations that the ECB could raise interest rates in September.

The Price

• The euro rose about 0.2% against the US dollar to $1.1442, after opening at $1.1420 and touching an intraday low of $1.1417.

• The euro closed Tuesday up 0.35% against the US dollar, recording its first daily gain in three sessions and reaching a two-week high of $1.1462 after weaker-than-expected US inflation data.

US dollar

The US Dollar Index fell 0.15% on Wednesday, extending losses for a second consecutive session as the greenback weakened against a basket of global currencies.

US June inflation data came in below expectations, driven by lower energy prices, signaling easing inflationary pressures on Federal Reserve policymakers.

US Treasury yields declined as expectations for near-term Federal Reserve rate hikes eased, while investors await additional economic data and comments from Fed officials for clearer guidance on the future path of monetary policy.

Later today, the United States will release June Producer Price Index (PPI) data, while Federal Reserve Chair Kevin Warsh will continue his semiannual testimony before the US Congress.

Global oil prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third consecutive session and approaching the one-month high reached on Tuesday as military clashes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

• The United States officially began enforcing its naval blockade of Iranian ports while monitoring vessels entering and leaving the country.

• US forces carried out fresh strikes targeting Iranian missile systems and air defense positions near the Strait of Hormuz in a further escalation of the conflict.

• Iran announced new drone attacks against US-linked targets and military bases across the region while maintaining a heightened state of military alert.

• Iranian authorities said Washington is mistaken if it believes its actions will force Tehran back to the negotiating table.

• US President Donald Trump issued a public warning to Tehran, threatening to destroy all power stations and key bridges across Iran "next week" unless the country immediately agrees to resume negotiations.

European interest rates

• Amid rising global oil prices, money markets have increased pricing for a 25-basis-point European Central Bank rate hike at the July meeting to above 35%.

• Market pricing for a 25-basis-point ECB rate hike in September has climbed above 95%.

• Investors now await additional eurozone inflation, employment, and wage data to further refine expectations for the ECB's policy outlook.

The Japanese yen strengthened against a basket of major and minor currencies during Asian trading on Wednesday, extending gains against the US dollar for a second consecutive session as the greenback softened following weaker-than-expected US inflation data.

Global oil prices remain close to one-month highs due to ongoing supply disruptions through the Strait of Hormuz, renewing concerns over rising inflationary pressures on the Bank of Japan and reinforcing expectations for further interest rate hikes.

The Price

• The US dollar fell about 0.2% against the Japanese yen to ¥161.96, after opening at ¥162.24 and reaching an intraday high of ¥162.26.

• The yen closed Tuesday up 0.1% against the US dollar, marking its third daily gain in the past four sessions, supported by softer US inflation data.

US dollar

The US Dollar Index fell 0.15% on Wednesday, extending losses for a second consecutive session as the greenback weakened against a basket of global currencies.

US June inflation data came in below expectations, driven by lower energy prices, signaling easing inflationary pressures on Federal Reserve policymakers.

US Treasury yields declined as expectations for near-term Federal Reserve rate hikes eased, while investors await additional economic data and comments from Fed officials for clearer guidance on the future path of monetary policy.

Global oil prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third straight session and approaching the one-month high reached on Tuesday as military clashes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

• The United States officially began enforcing its naval blockade of Iranian ports and monitoring vessels entering and leaving the country.

• US forces carried out fresh strikes targeting Iranian missile systems and air defense positions near the Strait of Hormuz in a further escalation of the conflict.

• Iran announced new drone attacks against US-linked targets and military bases across the region while maintaining a heightened state of military alert.

• Iranian authorities said Washington is mistaken if it believes these actions will force Tehran back to the negotiating table.

• US President Donald Trump issued a public warning to Tehran, threatening to destroy all power stations and key bridges across Iran "next week" unless the country agrees to immediately resume negotiations.

Japanese interest rates

• Amid higher global oil prices, market pricing for a 25-basis-point Bank of Japan rate hike at the July meeting has risen above 30%.

• Pricing for a 25-basis-point rate hike at the October meeting has climbed above 85%.

• Investors now await additional Japanese inflation, employment, and wage data to further refine expectations for the Bank of Japan's policy path.

Oil prices rose on Tuesday after the United States launched new airstrikes on Iran ahead of the reimposition of a naval blockade, while President Donald Trump abandoned his proposal to charge vessels transiting the Strait of Hormuz in exchange for US military protection.

US West Texas Intermediate (WTI) crude settled 1.5% higher at $79.34 per barrel, while global benchmark Brent crude climbed 1.72% to close at $84.73 per barrel.

In a post on social media, US Central Command (CENTCOM) said American forces had carried out fresh airstrikes against targets inside Iran as Washington prepared to reinstate a naval blockade on Iranian ports and coastal areas beginning at 4:00 p.m. Eastern Time.

Meanwhile, Trump backed away from his plan to impose a 20% transit fee on cargo passing through the Strait of Hormuz under US military protection, saying Gulf countries would instead compensate the United States through increased investment in the American economy.

The president's reversal followed strong opposition from the global shipping industry, while the International Maritime Organization (IMO) said mandatory transit fees in the strait would violate international law.

Escalating Hormuz confrontation and attacks on oil tankers

Iran has sought for years to impose transit charges for safe passage through the Strait of Hormuz, but the United States has consistently opposed any such fees. Under the temporary agreement signed between Washington and Tehran on June 17, Iran agreed not to levy transit charges for a period of 60 days.

During the session, US crude briefly traded above $80 per barrel as the confrontation between the United States and Iran over control of the Strait of Hormuz continued.

CENTCOM said US forces struck targets along Iran's coastline on Monday night for a third consecutive night as part of operations aimed at degrading Tehran's ability to attack commercial shipping.

Iran's Islamic Revolutionary Guard Corps (IRGC), meanwhile, said it had targeted two supertankers transiting the Strait of Hormuz after they switched off their identification systems.

Abu Dhabi National Oil Company (ADNOC) also reported that two of its tankers were hit by projectiles while passing through the strait, leaving one sailor dead and several others injured.

Ship-tracking companies reported a sharp decline in vessel traffic through the Strait of Hormuz since fighting resumed last week following Iranian attacks on several oil tankers.

Despite the hostilities, the US Department of Energy told CNBC that approximately 8.5 million barrels of oil passed through the Strait of Hormuz on Sunday.

Before the United States and Israel launched strikes against Iran on February 28, roughly one-fifth of global oil supplies flowed through the Strait of Hormuz. Shipping traffic fell sharply after Iran began targeting vessels in the waterway in early March, before gradually recovering following the temporary agreement reached between Washington and Tehran.