Forex Today: ECB policy decisions, US GDP data to dominate markets

Here is what you need to know on Thursday, January 25:

After Wednesday's volatile action amid PMI data releases from major economies, markets seem to have turned subdued early Thursday, with focus shifting to the European Central Bank (ECB) policy announcements. The US economic docket will feature the first estimate of the fourth-quarter Gross Domestic Product (GDP) growth, alongside Durable Goods Orders for December and the weekly Initial Jobless Claims data.

The US Dollar (USD) weakened against its rivals in the first half of the day on Wednesday as risk flows dominated the action. Later in the American session, however, the upbeat PMI data, which showed that the economic activity in the private sector expanded at a stronger pace than forecast in early January, helped the currency limit its losses. In the European morning, the USD Index (DXY) fluctuates above 103.00, while the benchmark 10-year US Treasury bond yield holds steady above 4% and US stock index futures trade mixed. The real GDP of the US is forecast to expand at an annual rate of 2% in the fourth quarter, down from the 4.9% growth recorded in the third quarter.

USD/CAD gathered bullish momentum and registered its highest daily close since mid-December above 1.3500 on Wednesday. The Bank of Canada (BoC) left the policy rate unchanged at 5% as expected following the January policy meeting. In the post-meeting press conference, BoC Governor Tiff Macklem acknowledged that discussions among policymakers have shifted to how long rates need to be kept at the current level before they can be lowered. Following Wednesday's rally, USD/CAD went into a consolidation phase above 1.3500 on Thursday.

EUR/USD capitalized on the broad-based USD weakness and closed in positive territory on Wednesday. The pair, however, failed to stabilize above 1.0900 and was last seen moving sideways slightly below this level. The ECB is forecast to hold key rates steady. ECB President Chrsitine Lagarde will comment on the policy outlook in a press conference starting at 13:45 GMT.

GBP/USD climbed to its highest level in nearly two weeks above 1.2770 during the European trading hours on Wednesday after the PMI data from the UK came in better than analysts' estimates. The pair staged a downward correction later in the American session and stabilized above 1.2700.

“Over the past six months, firms have generally expected their prices' growth to continue to moderate, but on average to remain above the Bank’s inflation target range of 2–3%," the Reserve Bank of Australia (RBA) said in its latest quarterly bulletin. AUD/USD showed no reaction to this publication and was last seen moving sideways below 0.6600.

USD/JPY declined sharply on Wednesday and lost more than 0.5% on a daily basis. The pair recovered modestly during the Asian trading hours on Thursday and advanced above 147.50.

After rising toward $2,040, Gold lost its traction and closed deep in negative territory on Wednesday as the benchmark 10-year US Treasury bond yield pushed higher on strong US PMI data. Early Thursday, XAU/USD stays relatively quiet below $2,020.