Forex Today: Volatility to remain high on ECB policy decision, US GDP data

Eren Sengezer FXStreet

Here is what you need to know on Thursday, July 27:

The US Dollar is struggling to find demand on Thursday following the Federal Reserve's policy announcements and Chairman Jerome Powell's press conference. Although markets seem to have calmed down in the European morning, the European Central Bank's (ECB) interest rate decision and the second-quarter Gross Domestic Product (GDP) data from the US could ramp up volatility in the second half of the day. The US economic docket will also feature Durable Goods Orders, weekly Initial Jobless Claims and Pending Home Sales data for June.

As expected, the Fed raised its policy rate by 25 basis points to the range of 5.25-5.5% after July policy meeting. There were only minor changes to the policy statement when compared to June. In the post-meeting press conference, Chairman Jerome Powell acknowledged that the policy was already restrictive and refrained from confirming another rate hike later in the year, triggering a decline in US T-bond yield and weighing on the USD. Early Thursday, the US Dollar Index consolidate its losses slightly below 101.00 and the 10-year US T-bond yield stays in negative territory at around 3.85%.

Federal Reserve Analysis: Quiet end to hikes? Powell calls for patience, markets set to party.

The ECB is also forecast to raise key rates by 25 bps. President Christine Lagarde's comments on policy outlook in the face of growing signs of economic slowdown in the Euro area will be scrutinized by participants.

ECB Preview: Another hike, but what next?

The US economy is forecast to grow at an annual rate of 1.8% in Q2 following the 2% expansion recorded in the first quarter.

US Q2 GDP Preview: Strong figures could help US Dollar in a “data-dependent” world.

EUR/USD snapped a seven-day losing streak on Wednesday and continued to push higher toward 1.1100 early Thursday.

GBP/USD closed in positive territory on Wednesday and touched its highest level in over a week near 1.2980 in the Asian session on Thursday. The pair stays in a consolidation phase and trades below 1.2950 in the European session.

USD/JPY extended its weekly downtrend and fell below 140.00 before recovering above that level on Thursday. The Bank of Japan will announce its monetary policy decisions in the Asian trading hours on Friday.

Gold benefited from retreating T-bond yields and advanced to a fresh weekly high above $1,980 in the Asian session on Thursday. Ahead of the key US data releases, however, XAU/USD lost its bullish momentum and retreated toward $1,970.

Bitcoin showed no noticeable reaction to the Fed policy decisions and extended its sideways grind at around $29,500. Ethereum registered small gains on Wednesday but lost its traction after testing $1,900.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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The Federal Reserve (Fed) and the Bank of Japan (BoJ) have just done something remarkably similar. Both central banks raised interest rates by 25 basis points (bps) last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.

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The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.