U.S. consumer sentiment improved in July, reaching its highest level since February, according to the University of Michigan's preliminary survey. The Consumer Sentiment Index rose to 54.4 from 49.5 in June, exceeding market expectations and indicating that Americans have become somewhat more optimistic about the economy.

The improvement was seen across different age groups, income levels and political affiliations, reflecting easing inflation pressures and slower price increases. Consumers' one-year inflation expectations also fell from 4.6% in June to 4.2%, while five-year expectations remained unchanged at 3.3%, suggesting inflation expectations are gradually stabilizing.

However, researchers cautioned that most survey responses were collected before renewed fighting erupted following the collapse of the U.S.-Iran ceasefire. Rising crude oil and gasoline prices could weaken household purchasing power and reverse recent gains in consumer confidence if energy costs continue climbing.

Consumer spending accounts for roughly 70% of the U.S. economy, making sentiment an important indicator of future economic activity. Analysts said persistent increases in fuel prices could complicate the inflation outlook, influence Federal Reserve policy decisions, and weigh on economic growth in the second half of the year.