The market's immediate focus is Friday's pivotal U.S. payrolls report after disappointing private labour data for August. Fed Board Governor Christopher Waller is due to speak after Federal Reserve Bank of New York President John Williams tempered expectations of a hike this month.
"If this war were to be put to bed, then that would certainly be something very positive to bring yields back down again across the board," Gavin Friend, a senior markets strategist at NAB, said on a podcast. "It would ease a lot of the tensions because central banks could get that back to thinking about normal policy considerations after a time."
Investors remained on edge over developments in the Middle East after the U.S. and Iran exchanged their largest barrage of attacks since July, reviving fears of a broader regional escalation.
U.S. crude CLc1 fell 0.43% to $90.62 a barrel and Brent LCOc1 dropped to $95.07 per barrel, down 0.59%. Spot gold XAU= rose 1.14% to $4,436.34 an ounce. U.S. gold futures GCc1 jumped 1.37% to $4,426.30 an ounce, and spot silver XAG= rose 1.3% to $66.17 an ounce.
Traders have recently increased bets on a Federal Reserve interest rate hike. They now assign a roughly 62% chance that the Fed will deliver a 25-basis-point rate increase this month, up from 37% a week ago, according to CME Group's FedWatch tool.
The Fed's Williams said on Wednesday that rising long-term bond yields are a reflection of a solid economy, adding that he was still collecting information to drive his next monetary policy decision. The key nonfarm payrolls report is due on Friday, following an ADP National Employment Report that showed lower than expected job gains.
Policy meetings of the European Central Bank and the Bank of Japan will also be closely watched as markets gauge how far major central banks are prepared to tighten policy in response to persistent inflation pressures.
Data on Thursday showed Japan's services sector expanded at its fastest pace in five months in August, adding to evidence the economy is robust enough to handle a BOJ rate hike.
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