Futures markets are also expecting a rate cut. Investors peg the chances of a quarter-point interest rate cut at nearly 96%, according to the CME FedWatch Tool, a measure of market sentiment.

Short-term U.S. government bonds are underperforming longer-duration Treasurys after San Francisco Fed President Mary Daly pushed back against the need for an interest-rate cut of 50 basis points at the Federal Reserve's September meeting.

Gold extended gains to a third session on Thursday, supported by rising expectations of an interest rate cut by the U.S. Federal Reserve in September following tame inflation data, which also weighed on the dollar.