Major currency pairs trade cautiously as Fed remarks and data stay in focus

Major currency pairs traded in narrow ranges during the European session on Thursday as the US dollar found some support after a two-day decline.

Investors shifted their attention to the upcoming US economic releases, including weekly Initial Jobless Claims and June Retail Sales data, while also monitoring comments from Federal Reserve (Fed) officials for fresh policy signals.

The US dollar stabilized after coming under pressure earlier in the week following softer-than-expected inflation data.

Market participants remained cautious ahead of the economic releases that could provide further insight into the health of the US economy and the likely path of monetary policy.

Softer inflation data weigh on the US dollar

The US Bureau of Labour Statistics (BLS) reported on Tuesday that consumer inflation increased at a much slower pace than expected in June.

The trend continued on Wednesday after producer inflation data also came in below market expectations.

The Producer Price Index (PPI) fell 0.3% in June.

On an annual basis, producer inflation rose 5.5%, below the market expectation of 6.2%.

The softer inflation readings kept the US dollar under pressure through Wednesday.

The US Dollar Index lost about 0.5% during the session before stabilizing around the 100.50 level early Thursday.

Meanwhile, US stock index futures traded largely unchanged, reflecting a cautious mood among investors ahead of fresh economic data.

Comments from Fed Chair Kevin Warsh during the second day of his congressional testimony also remained in focus.

Middle East tensions remain elevated

Geopolitical developments also remained on investors' radar.

The US and Iran exchanged strikes for a fifth consecutive day.

During the Asian trading session, the US military announced another wave of strikes on Iran.

Iranian media reported explosions in Qeshm Island, Bandar Abbas, and Chabahar.

In response, Iran said it had targeted US assets in Kuwait, Bahrain, and Jordan.

Despite elevated geopolitical tensions, gold failed to attract strong safe-haven demand.

Gold (XAU/USD) posted only modest gains on Wednesday despite the broader weakness in the US dollar.

During the European session on Thursday, the precious metal edged lower toward the $4,000 level.

The euro and pound hold recent gains

The euro continued to benefit from the dollar's earlier weakness.

EUR/USD extended its rebound on Wednesday and climbed above 1.1480, reaching its highest level in about one month.

The pair entered a consolidation phase during the European session on Thursday and traded around 1.1460.

Sterling also maintained much of its recent strength after a strong performance in the previous session.

GBP/USD advanced more than 1% on Wednesday, climbing above 1.3550 to its highest level in two months.

The pair eased slightly on Thursday and traded near 1.3530.

Economic data from the UK's Office for National Statistics (ONS) showed that the country's Gross Domestic Product (GDP) increased by 0.1% month-on-month in May, matching market expectations.

Bank of Canada keeps rates unchanged

The Bank of Canada (BoC) left its policy interest rate unchanged at 2.25% on Wednesday, in line with market expectations.

During the post-meeting press conference, BoC Governor Tiff Macklem said longer-term inflation expectations remained well anchored.

However, he acknowledged that conflicts in the Middle East and Canada's trade relationship with the United States represented the biggest risks facing the economy.

USD/CAD ended Wednesday marginally lower following Tuesday's sharp decline.

During Thursday's European session, the pair traded within a narrow range around 1.4050.

Yen trades steady as Japanese officials monitor currency moves

USD/JPY remained largely unchanged around the 162.00 level after ending Wednesday's session little changed.

Japan's Finance Minister Satsuki Katayama reiterated on Thursday that authorities were prepared to take appropriate action in the currency market whenever necessary.

Meanwhile, the Bank of Japan's (BoJ) quarterly survey showed that 90.4% of Japanese households expected prices to rise over the next year, up from 83.7% in the previous survey.

Investors now await the release of US Initial Jobless Claims and June Retail Sales figures, along with further remarks from Federal Reserve officials, for additional direction across currency markets.