Forex Today: Key inflation data could trigger the next big reaction

Here is what you need to know on Thursday, February 29:

The US Dollar (USD) lost its strength during the American trading hours on Wednesday, while US Treasury bond yields edged lower. The USD Index (DXY) stays below 104.00 early Thursday as market focus shifts to the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred gauge of inflation, data for January. Preliminary February Consumer Price Index (CPI) data from Germany, fourth-quarter Gross Domestic Product (GDP) reading from Canada will also be watched closely by market participants.

After falling nearly 1%, the benchmark 10-year US Treasury bond yield fluctuates between 4.25% and 4.3% in the European morning. In the meantime, US stock index futures trade flat after Wall Street's main indexes closed modestly lower on Wednesday. Core PCE inflation in the US is forecast to rise 0.4% on a monthly basis. Weekly Initial Jobless Claims, Pending Home Sales, Personal Income and Personal Spending data for January will be featured in the US economic docket as well. Finally, several Fed policymakers will be delivering speeches in the second half of the day.

US Core PCE Inflation Preview: Federal Reserve preferred price gauge looks set to accelerate in January.

USD/JPY came under heavy bearish pressure in the Asian session on Thursday and declined below 150.00 for the first time in over a week. Bank of Japan (BoJ) board member Hajime Takata noted that momentum is rising in spring wage talks and added that a high wage hike rate would prompt continual expectations that household income will rise. Commenting on the policy outlook, Takata argued that they need to consider taking a flexible response, including an exit from monetary stimulus. He further elaborated by saying that he is not thinking of raising interest rates one after another.

Japanese Yen eases from over one-week high, bulls turn cautious ahead of US PCE Price Index.

The data from Australia showed that Retail Sales rose by 1.1% on a monthly basis in January following the 2.7% decline recorded in December. After falling more than 0.7% on Wednesday, AUD/USD staged a rebound early Thursday and was last seen trading in positive territory above 0.6500.

Australian Dollar gains ground amid a stable US Dollar ahead of US PCE - Price Index.

The Canadian economy is forecast to grow at an annual rate of 0.8% in the fourth quarter, following the 1.1% contraction recorded in the previous quarter. After touching its highest level since mid-December at 1.3606, USD/CAD staged a downward correction and was last seen trading flat on the day at around 1.3570.

EUR/USD recovered from the weekly-low it touched below 1.0800 on Wednesday and closed the day virtually unchanged. The pair fluctuates in a tight channel below 1.0850 early Thursday. Germany's Destatis reported that Retail Sales declined by 0.4% on a monthly basis in January, missing the market expectation for an increase of 0.5% by a wide margin.

GBP/USD snapped a six-day winning streak on Wednesday. The pair stays in a consolidation phase below 1.2700 in the European morning on Thursday.

Gold benefited from retreating US yields on Wednesday and posted marginal gains. XAU/USD trades near the upper limit of its near-term range slightly below $2,040.

Gold price remains confined in narrow range ahead of key US inflation data.