Earlier this week, US military forces launched strikes on Iranian nuclear sites, prompting President Donald Trump to declare that both Israeli and Iranian authorities were ready to immediately sign a ceasefire. Tehran responded with targeted attacks on US military bases in Qatar and Iraq, but no significant damage was reported. Investor focus quickly shifted to Federal Reserve Chair Jerome Powell’s testimony before Congress, where he reiterated the case for potential interest rate cuts “later this year” but also issued a cautious critique of current tariff policies, warning that they exacerbate inflationary risks and could increase the likelihood of a US recession under adverse scenarios.
This position stands at odds with the current Republican administration, and growing speculation is circulating about a possible replacement for Powell as his term expires in May 2026. On Thursday, revised GDP data for Q1 showed the US economy contracted by 0.5% (vs. –0.2% expected)—the first quarterly decline in three years. Meanwhile, durable goods orders surged 16.4% in May after a sharp –6.6% drop previously, smashing forecasts of 8.5%, and capital goods orders (ex-transport) rose 0.5% after flatlining in April. Initial jobless claims for the week ending May 20 fell to 236,000 (from 245,000), while continuing claims ticked up to 1.974 million (vs. 1.950 million expected).
Today’s market focus is the US PCE inflation print (14:30 GMT+2): forecasts point to an uptick in the core PCE price index from 2.5% to 2.6% YoY, and the headline rate from 2.1% to 2.3%. In the eurozone, business climate data at 11:00 (GMT+2) is expected to show the index rising from 94.8 to 95.1, service sector sentiment up to 1.6, and industrial optimism improving to –9.9.
GBP/USD: Sterling Flat Ahead of US Inflation Data
The British pound is trading sideways against the dollar, holding near 1.3720 in a subdued session as US investors remain cautious before the inflation report. Market participants anticipate the US PCE price index to accelerate to 2.3% YoY in May, partially confirming the Fed's forecasts of a potential uptick in inflation. On a monthly basis, the index is expected to tick up by 0.1%, while the core reading is projected to rise from 2.5% to 2.6% YoY.
Earlier this week, Jerome Powell reiterated that any policy easing would likely occur "later this year," cautioning that elevated tariffs pose risks to inflation stabilization and could increase the likelihood of a recession. The second reading of Q1 US GDP showed a contraction of 0.5%, larger than the initial –0.2% estimate. The greenback also came under pressure as geopolitical risks subsided—Israel and Iran agreed to a US-brokered ceasefire.
Meanwhile, UK data remains supportive: June S&P Global manufacturing PMI improved from 46.4 to 47.7 (vs. 46.6 forecast), services rose from 50.9 to 51.3, and the composite index edged up to 50.7 (vs. 50.5 expected), reinforcing expectations of resilience in the UK economy.
AUD/USD: Aussie Pauses, Investors Eye US Data
The Australian dollar is in corrective mode against the greenback, retreating from November’s highs and retesting 0.6540 as profit-taking sets in. Investors are largely sidelined ahead of today’s key US inflation release. A higher-than-expected PCE print could strengthen the Fed’s “wait and see” approach, often criticized by the White House for not moving quickly enough.
In recent testimony, Powell highlighted the importance of further data before cutting rates, given ongoing uncertainty over the ultimate impact of tariff policy. Back in Australia, Wednesday’s CPI data showed annual inflation cooling to 2.1% in May (vs. 2.3% forecast), moving closer to the Reserve Bank of Australia’s target and increasing the odds of a dovish pivot.
USD/JPY: Yen Steadies as Japanese Inflation Slows
The dollar-yen pair is rangebound near 144.40 amid mixed macro releases from Japan. Tokyo’s core CPI slowed from 3.4% to 3.1% in June, and the ex-food and energy index also fell to 3.1%. Retail sales data disappointed, dropping from 3.5% to 2.2% YoY, while large store sales fell from 3.3% to 2.0%.
These developments point to a loss of inflationary momentum in Japan, partly due to weaker consumer demand and trade headwinds linked to US tariffs. The Bank of Japan may come under renewed pressure to delay any further rate hikes, though many analysts still expect a 25bps move in July. US inflation data at 14:30 (GMT+2) remains the main focus for USD/JPY, as the Fed’s outlook could shift if inflation surprises on the upside.
XAU/USD: Gold Drops as Geopolitical Risks Fade
Gold continues its short-term decline, with XAU/USD testing the $3300 level as demand for safe havens wanes amid easing tensions in the Middle East. Israel and Iran, with US mediation, have reached a ceasefire agreement, prompting a shift in investor focus to monetary policy.
Powell’s recent remarks before Congress suggested rate cuts are still more likely “later this year,” but his criticisms of current tariff policies—arguing they exacerbate inflation risks and recession odds—differ from the White House’s stance. With inflation data due today, markets will be looking for new clues as to whether the Fed will maintain its current “wait-and-see” policy or move more aggressively to address persistent price pressures.