The US dollar recovered during Thursday’s trading after President Donald Trump dismissed fresh rumors of his intent to fire Federal Reserve Chair Jerome Powell. Meanwhile, a strong earnings season helped end a four-day losing streak for European stock markets.

The pan-European Stoxx 600 index (.STOXX) opened notably higher, supported by record order volumes announced by Swiss engineering giant ABB, and a record profit of $13.5 billion reported by Taiwanese chipmaker TSMC. Investor sentiment was also buoyed by renewed optimism over a potential trade agreement between the EU and the US following talks in Washington.

Markets were also awaiting key US data on retail sales and jobless claims for further insight into how tariffs are impacting the economy, alongside the European Commission’s proposal for a significant increase in the EU budget.

Currencies in the Spotlight

Currency markets remained the primary focus. The US dollar rose 0.4% to $1.16 per euro, rebounding to levels seen before what Société Générale analyst Kit Juckes called “Wednesday’s madness,” when reports that Trump was preparing to fire Powell sent markets into a brief panic—before Trump later denied the claim.

In Japan, the dollar found additional support as polls showed that Prime Minister Shigeru Ishiba’s coalition risked losing its Senate majority in upcoming elections. This political uncertainty pushed the yen to its weakest level since April, trading at 148.73 per dollar.

Data also showed that Japanese exports are beginning to suffer from tariffs, with shipments declining for a second straight month. Meanwhile, the Australian dollar dropped 1% overnight following weak employment data.

Juckes noted: “The market is heavily exposed against the dollar, and now that we’re deep into summer, some investors have begun buying the greenback again.”

US equity futures pointed to a slightly higher open on Wall Street later in the day. In Europe, stocks rose 0.7%, snapping a four-day losing streak, while Asian markets saw gains between 0.3% and 0.6%, including the Nikkei (.N225), Taiwan Weighted (.TWII), and China’s CSI 300 (.CSI300).

In a notable development in the M&A space, Canadian retailer Alimentation Couche-Tard (.ATD.TO) announced it was withdrawing its $47 billion bid to acquire Japan’s Seven & i Holdings (.3382.T), citing a “lack of constructive engagement” from the operator of the 7-Eleven convenience store chain. Shares of Seven & i fell to a three-month low, ending the day with a loss of over 9%.

Trump Calms Markets—For Now

Trump’s swift denial of the Powell rumors helped temporarily stabilize volatile markets, though he left the door open to the possibility and reiterated his criticism of the Fed Chair for not cutting interest rates.

Francesco Pesole, analyst at ING, wrote: “After yesterday’s panic, markets may have become a bit more resilient to headlines on this issue,” adding, “But during that hour, we saw the expected reaction: a sharp steepening of the US yield curve and a notable drop in the dollar.”

Short-term US Treasury yields declined amid speculation that any potential Powell replacement would be ultra-dovish, likely favoring deeper and faster rate cuts.

Meanwhile, the yield on 10-year US Treasuries stabilized at 4.4714% during European trading, while German bund yields held steady at 2.695% after hitting their highest level since late March earlier in the week.

As of 11:59 GMT, the US Dollar Index had risen 0.3% to 98.7, after touching a high of 98.8 and a low of 98.3 during the session.

Gold prices declined in the European market on Thursday, retreating from a three-week high, as a result of active profit-taking and corrective movements, in addition to pressure from the strengthening US dollar in the foreign exchange market.

The rise in the American currency came after President Donald Trump stated that it is “highly unlikely” he would fire Federal Reserve Chair Jerome Powell.

The Price

• Gold spot price fell by 0.65% to $3,325.29 per ounce, down from the opening level of $3,347.23, after recording an intraday high of $3,352.32.

• Upon Wednesday's settlement, gold prices had gained 0.7%—their first rise in three sessions—reaching a three-week high of $3,377.47 per ounce, supported by a decline in the US dollar following weaker-than-expected US Producer Price Index (PPI) data.

The US Dollar

The US Dollar Index rose by 0.55% on Thursday, resuming its upward trend after a temporary pause on Wednesday. It approached a three-week high at 98.91 points, reflecting broad gains in the dollar against a basket of major and minor currencies.

President Donald Trump said on Wednesday that he does not currently plan to fire Powell but left the door open to that possibility. He also reiterated his criticism of the Fed Chair for not cutting interest rates.

US Interest Rates

• Data released on Wednesday showed a sharper-than-expected slowdown in US producer prices for June, a strong signal that consumer prices may also ease in July.

• Following the data, and according to the CME Group’s FedWatch tool: The probability of a 25 basis-point rate cut at the July meeting held steady at 2%, while the probability of holding rates steady remained high at 98%.

• For the September meeting, the probability of a 25 basis-point cut rose from 55% to 57%, while the probability of no change declined from 45% to 43%.

• According to data from the London Stock Exchange, traders are currently pricing in less than 50 basis points of cumulative rate cuts by the end of the year, with expectations for the first 25-basis-point cut in October.

• In order to reprice these expectations, investors are awaiting key economic data from the US later today, including monthly retail sales and weekly jobless claims.

Gold Outlook

• Reliance Securities senior analyst Jigar Trivedi said: “Gold slipped below $3,340 per ounce as the US dollar regained momentum following reduced uncertainty over the Fed chair’s position.”

• Trivedi added: “The flat reading of June’s US PPI indicates stable wholesale prices, suggesting that tariffs may have a smaller economic impact than initially feared.”

SPDR Gold Trust

Holdings in the SPDR Gold Trust— the world’s largest gold-backed ETF—rose by 3.15 metric tons on Wednesday, bringing the total to 950.79 metric tons, marking the highest level since June 30.

The British pound declined with the opening of the European market on Thursday against a basket of major currencies, resuming its losses after a brief pause against the US dollar and nearing a two-month low, amid concerns that UK labor market data may reinforce signs of an economic recession.

The unexpected rise in core inflation levels in the UK for June renewed inflationary pressures on Bank of England policymakers, leading to a decline in expectations of a British rate cut in August.

The Price

• GBP/USD today: The pound dropped 0.3% to (1.3384$), down from the opening price of (1.3421$), after recording a session high at (1.3428$).

• On Wednesday, the pound rose 0.25% against the dollar — its first gain in nine sessions — as part of a rebound from a two-month low at 1.3365$.

UK Inflation

The Office for National Statistics said on Wednesday that the UK’s headline inflation rate rose 3.6% year-on-year in June, above market expectations for a 3.4% increase, and up from 3.4% in May.

Core inflation rose 3.7% in June, also higher than the expected 3.5%, and up from 3.5% in May.

The unexpected jump in prices has renewed inflationary pressures on Bank of England policymakers and may slow the pace of policy easing and rate cuts in the second half of the year.

UK Interest Rates

• Traders scaled back their bets on BoE rate cuts, now expecting less than 50 basis points of easing this year.

• Market pricing for a 25-basis-point rate cut in August dropped from 80% to 65%.

Andrew Bailey

Bank of England Governor Andrew Bailey told The Times on Monday that the direction of interest rates is “certainly downward.” In the interview, he signaled that the Bank would accelerate its rate-cutting pace if further signs of “slack” emerged in the economy.

“Slack” refers to an economic condition where the economy is not operating at full capacity, characterized by rising unemployment and slowing output. This is considered disinflationary and would strengthen the central bank’s confidence in inflation falling to 2.0% by 2026, as currently projected.

UK Labor Market

The upcoming UK labor market report, due later today, is equally critical for the pound, as it’s expected to provide further signs of labor market weakness.

There are growing indications that the job tax imposed by Rachel Reeves is burdening the labor market, with more job losses likely.

Traders are also struggling with the chaotic nature of UK labor market statistics, with some survey components now deemed unreliable.

A weak jobs report would provide further evidence to the BoE that the economic recession is unfolding, warranting additional rate cuts.

And as FX markets refocus on relative interest rates, a faster pace of BoE easing would weigh heavily on the pound.

The Australian dollar slid to a three-week low against its US counterpart in Asian trading on Thursday, as open selling accelerated following gloomy labor market data out of Australia.

The data showed that the country's unemployment rate rose to its highest level in three and a half years, with fewer jobs added than expected in June. This marked the latest sign of slowing economic growth in Australia and increased the likelihood of a rate cut by the Reserve Bank of Australia in August.

The Price

• AUD/USD today: The Australian dollar dropped by 0.9% to (0.6473), its lowest level since June 24, down from the day’s opening level of (0.6553). It recorded a session high at (0.6533).

• On Wednesday, the Australian dollar rose 0.2% against the US dollar — its first daily gain in four sessions — following weaker-than-expected US producer price data.

Australian Labor Market

Figures released Thursday by the Australian Bureau of Statistics showed that the unemployment rate climbed to 4.3% in June, its highest level since November 2021, up from 4.1% in May and exceeding market expectations for a rise to 4.1%.

The Australian economy added around 2,000 new jobs in June, falling well short of market expectations for 21,000 jobs, after losing around 1,100 jobs in May.

The soft labor market is the latest indication of weak economic growth in Australia, which may prompt the Reserve Bank of Australia to ease monetary policy and cut interest rates.

Comments and Analysis

• IG analyst Tony Sycamore said: "There are clear signs of labor market weakness. This raises questions about the RBA’s decision to prioritize inflation over growth and employment at its meeting earlier this month."

• Sycamore added: "There’s no doubt the RBA will be keen to correct course at its August meeting."

• Harry Murphy Cruise, head of economic research at Oxford Economics Australia, stated: "While we’re not ringing alarm bells just yet, June’s slowdown is another solid reason for the RBA to move cautiously toward rate cuts."

Australian Interest Rates

• Following the labor market data, interest rate swap contracts now imply more than 50 basis points of easing by year-end.

• Market pricing for a 25-basis-point rate cut by the RBA in August rose from 76% to 85%.

• The RBA has cut rates twice since February, bringing the benchmark rate to 3.85%, as inflation has slowed into the target range of 2% to 3%.