European Stocks Rise as U.S. Inflation Data Eases Fed Rate Hike Fears

European stocks moved higher on Thursday as investors welcomed an in-line U.S. inflation report that reduced expectations for another Federal Reserve interest rate hike in September.

The pan-European Stoxx Europe 600 Index gained 0.2%, moving closer to record highs. Germany’s DAX and France’s CAC 40 each climbed 0.3%, while the UK’s FTSE 100 advanced 0.6%, supported by stronger-than-feared British economic data.

Market sentiment improved after U.S. Consumer Price Index figures showed headline inflation rising 0.1% month-on-month in July, while core inflation stood at 2.5% year-on-year. Combined with the previous week’s unexpectedly weak U.S. nonfarm payrolls report, the inflation data eased concerns that the Fed would need to tighten monetary policy further.

Money markets subsequently lowered the probability of a 25-basis-point Fed rate increase at the September 16 meeting to around 40%, compared with nearly 67% a week earlier. Investors increasingly see the latest inflation figures as giving policymakers more room to keep interest rates unchanged.

In the UK, second-quarter GDP expanded 0.4%, matching market forecasts. Resilient consumer-facing services helped drive growth, providing evidence that the British economy continues to expand despite elevated borrowing costs. The figures could allow the Bank of England to maintain its cautious, data-dependent approach toward future monetary easing.

Oil prices, meanwhile, retreated from multi-week highs but remained above $80 per barrel. Traders continued monitoring tensions between the United States and Iran surrounding shipping access through the Strait of Hormuz. Uncertainty over a lasting agreement has kept a geopolitical risk premium embedded in energy and freight markets.

Investors are also awaiting Spain’s final July inflation figures and Eurozone industrial production data for further clues about regional inflation and manufacturing conditions.

Among individual European stocks, Pandora shares jumped nearly 3% after the jewelry company beat second-quarter expectations and raised its earnings outlook. Thyssenkrupp fell around 1.5% despite narrowing its 2026 guidance higher.