Dollar Down, Stocks Up; Global Markets Brace for Key Inflation Data

The EUR/USD pair initially edged lower on Wednesday, but later rebounded to close the session with modest gains as the U.S. Dollar came under renewed selling pressure. The shift followed dovish remarks from Federal Reserve officials, particularly New York Fed President John Williams, who adopted a cautious stance on the outlook for interest rate cuts. In an interview with CNBC, Williams reiterated that while rate cuts remain a possibility, the Fed would rely heavily on incoming economic data before making any decisions.

“Risks are more in balance,” he said, adding, “We’re going to just have to see how the data plays out.” His comments were interpreted as dovish yet non-committal, effectively tempering expectations for aggressive policy easing in the near term.

However, the Euro's upside remained limited amid growing political uncertainty in France. Prime Minister François Bayrou's call for a September 8 confidence vote on his €44 billion budget plan has heightened fears of a potential snap election, particularly as opposition parties are widely expected to reject the proposal. A failure to secure support could derail France’s fiscal agenda and potentially lead to the collapse of the government, increasing political instability in the Eurozone’s second-largest economy. These developments have emerged as a key headwind for the Euro, adding to investor caution ahead of critical regional data.

Looking ahead, preliminary inflation data for August from several major Eurozone economies—scheduled for release on Friday—will be closely monitored. The results will be pivotal in shaping expectations for the European Central Bank’s (ECB) next policy move, especially as markets assess whether core inflation is trending toward the ECB's target.

Gold prices were largely unchanged on Wednesday, as investors remained on edge, awaiting critical inflation data for clues on the Federal Reserve's next move on interest rates. Meanwhile, lingering concerns over the Fed's independence continued to impact market sentiment, following U.S. President Donald Trump's attempt to remove a Federal Reserve governor. The focus now shifts to U.S. Personal Consumption Expenditures (PCE) data, scheduled for release on Friday.

Gold, traditionally seen as a hedge against uncertainty and a zero-yield asset, tends to perform well in low-interest-rate environments. Markets are pricing in a more than 87% chance of a 25-basis-point rate cut during the Fed’s policy meeting in September, according to the CME FedWatch Tool.

This week, President Trump made headlines by announcing his intention to remove Fed Governor Lisa Cook from her position on the Fed’s board of directors. Cook’s lawyer has since indicated plans to file a lawsuit to block the removal, setting the stage for what could be a prolonged legal battle. Gold prices spiked to a two-week high on Tuesday, driven by the market’s reaction to Trump’s attempted dismissal of Cook.

Oil prices settled higher on Wednesday, supported by a larger-than-expected drop in U.S. crude inventories and concerns over the potential impact of new U.S. tariffs on India. However, the market remains on edge with growing geopolitical tensions and the ongoing conflict between Russia and Ukraine.

The Energy Information Administration (EIA) reported that U.S. crude inventories fell by 2.4 million barrels to 418.3 million barrels last week.

Gasoline stocks also dropped by 1.2 million barrels, falling short of the expected 2.2-million-barrel draw. Additionally, distillate stockpiles, which include diesel and heating oil, fell by 1.8 million barrels, much larger than the anticipated 885,000-barrel increase, the EIA data revealed.

Tensions also rose with the U.S. President Donald Trump’s announcement that the U.S. would double tariffs on imports from India—as high as 50%—in retaliation for India’s continued purchases of Russian oil. These tariffs took effect on Wednesday, although there has been no immediate sign of supply disruption.

Adding to the volatility, both Russia and Ukraine have intensified attacks on each other’s energy infrastructure, further heightening concerns about potential supply disruptions.

The geopolitical risks are compounded by ongoing diplomatic efforts to end the war. U.S. special envoy Steve Witkoff announced he would meet Ukrainian representatives in New York this week, with Washington also engaging in talks with Russia to seek a peaceful resolution.

U.S. stock index futures fell on Wednesday evening, led lower by Nvidia following its second-quarter earnings report, which beat market expectations but failed to lift the chipmaker’s shares.

Although Nvidia reported second-quarter earnings of $1.04 per share, beating expectations of $1.01, and revenue of $46.7 billion, surpassing estimates, concerns over its data center revenue weighed on investor sentiment. The company's data center revenue of $41.1 billion fell short of the expected $41.34 billion. This miss was largely attributed to no H20 chip sales to China during the quarter, after facing geopolitical hurdles.

Despite receiving approval from the U.S. government to resume H20 sales to China in late July, Nvidia has yet to ship any chips to the country, with further uncertainty around whether the U.S. will take 15% of its H20 sales revenue in China. Colette Kress, Nvidia’s CFO, stated that the company could ship between $2 billion and $5 billion in H20 revenue in the current quarter, assuming the geopolitical situation stabilizes.

Despite the after-hours selloff in tech stocks, Wall Street closed the regular session on a positive note. The rally in U.S. stocks has been driven by a largely positive second-quarter earnings season and increasing bets that the Federal Reserve will cut interest rates in September. However, doubts over the Fed’s next moves and a sharp drop in tech stocks have caused some cooling in the market through late August

With tech stocks on investors' radar, the focus now shifts to key economic data set for release later this week. Second-quarter GDP data is due on Thursday, with analysts expecting growth of 3% quarter-on-quarter. On Friday, the PCE Price Index, the Fed’s preferred inflation gauge, will be closely watched for further insights into the inflation outlook and potential future rate cuts.