US GDP Rebounds, USDX Rallies; Fed Holds Rates Steady

EUR/USD fell for a third consecutive session, dropping over 1% on Wednesday. The pair breached the 1.1430 level, pressured by diverging economic outlooks and central bank trajectories.

The Federal Reserve kept interest rates unchanged at its July meeting, holding the federal funds rate in the 4.25%–4.50% range in a 9–2 vote, with Governors Waller and Bowman dissenting in favor of a rate cut. However, Fed Chair Jerome Powell struck a cautious and notably hawkish tone, emphasizing persistent inflationary pressures and heightened uncertainty surrounding tariffs.

Powell refrained from offering forward guidance on the September meeting, noting that “tariff passthrough to prices may be slower than thought,” and indicating that the Fed remains vigilant about upside risks to inflation. His remarks, combined with surprisingly strong US GDP and labor market data, reinforced the central bank’s “higher-for-longer” policy stance.

US economic data surprised to the upside, with Q2 GDP expanding by 3.0% quarter-over-quarter, sharply rebounding from a 0.5% contraction in Q1 and beating expectations of 2.4%, according to the Commerce Department. Labor market conditions also showed resilience, as private payrolls rose by 104,000 in July, significantly outpacing estimates of 78,000 and reversing June’s decline.

In the Eurozone, economic momentum remains subdued. Bloc-wide GDP growth slowed to 1.4% year-over-year in Q2 2025, down from 1.5% in Q1. Germany's economy showed modest improvement, with Q2 GDP rising 0.4% quarter-over-quarter following flat growth in Q1. Retail sales in Germany grew by 1.0% in June, beating forecasts, but overall growth in the region remains tepid. Looking ahead, key US data releases including Core PCE, Initial Jobless Claims, Nonfarm Payrolls, and the ISM Manufacturing PMI could further shape expectations for the Fed's path.

Gold prices fell sharply on Wednesday after the Federal Reserve opted to keep interest rates unchanged and offered little clarity on the timing of potential rate cuts. Meanwhile, stronger-than-expected U.S. economic data further reduced the allure of the non-yielding asset.

The Fed's decision to hold rates steady came in a split vote, with two dissenting governors favoring a rate cut. However, Chair Jerome Powell offered no guidance on a possible policy shift in September, where markets had previously priced in the likelihood of the first rate cut of the year.

Gold, which typically benefits from low interest rates and market uncertainty, came under further pressure from robust U.S. labor data. The ADP National Employment Report showed private-sector payrolls rose by 104,000 in July, beating expectations and signaling continued resilience in the job market, despite emerging signs of softening.

Gold is often viewed as a hedge against inflation, currency debasement, and geopolitical risk. However, its performance is also tightly linked to real interest rates and the dollar—both of which moved against it following the Fed’s latest decision and Powell’s tone.

Still, many analysts believe that gold retains long-term support from broader macroeconomic factors, including elevated government debt levels, ongoing geopolitical uncertainty, and global trends such as de-dollarization by central banks. These structural dynamics could continue to underpin gold prices even amid short-term volatility.

Oil prices rose more than 1% on Wednesday as markets reacted to heightened geopolitical risks, including a tighter deadline from U.S. President Donald Trump for Russia to end the war in Ukraine and renewed tariff threats targeting countries trading in Russian oil.

Markets were rattled after Trump escalated pressure on Russia, announcing Tuesday that Moscow has 10 to 12 days to show meaningful progress toward ending the Ukraine conflict—an acceleration from his previous 50-day ultimatum. Failure to comply would trigger sweeping new measures, including 100% secondary tariffs on nations continuing to trade with Russia.

In a move underscoring the administration’s hardline stance, Trump also imposed a 25% tariff on imports from India effective August 1, and warned of unspecified penalties for purchases of Russian weapons and oil. China, Russia’s largest oil customer, was cautioned that it too could face steep tariffs if it continues to buy Russian crude.

On the data front, U.S. crude inventories unexpectedly rose by 7.7 million barrels last week, according to the Energy Information Administration (EIA). Analysts had forecast a 1.3 million-barrel draw. Gasoline stockpiles, however, fell by 2.7 million barrels—well above expectations for a 600,000-barrel decline—while distillate inventories rose by 3.6 million barrels, also exceeding estimates.

The Federal Reserve, in a closely watched decision, left interest rates unchanged in a split vote and offered little guidance on the path forward. Fed Chair Jerome Powell noted it was still too early to say whether the central bank might lower rates in September, despite market expectations pointing in that direction.

U.S. stock index futures surged Wednesday evening, lifted by stronger-than-expected quarterly earnings from Microsoft and Meta Platforms. The robust results bolstered investor confidence in AI-driven growth, particularly in the technology sector.

The after-hours rally came on the heels of a subdued trading session during which the Federal Reserve held interest rates steady, as widely anticipated. However, policymakers' cautious tone dampened expectations for a potential rate cut in September.

Shares of Microsoft soared  in extended trading after the company reported fourth-quarter earnings that beat estimates, driven by strong demand for cloud computing and AI services. Meta Platforms shares also jumped following blowout second-quarter results and strong forward guidance, reflecting continued momentum in its advertising business.

These earnings marked the first from the so-called “Magnificent Seven” group of megacap tech firms, with reports from Apple and Amazon  scheduled for release on Thursday.

In geopolitical developments, President Donald Trump announced new tariffs on Wednesday, including a 15% levy on imports from South Korea. He said the country agreed to invest $350 billion in the U.S. and purchase $100 billion in American energy products.

Trump also signed a proclamation imposing a 50% tariff on semi-finished and copper-intensive products, effective August 1, citing national security risks.

Trump’s broader push for "reciprocal" trade measures is expected to take fuller effect in the coming weeks, with several bilateral trade issues still unresolved.