Forex Today: Fed-inspired dollar weakness continues ahead of key data releases

Here is what you need to know on Thursday, July 28:

The dollar came under heavy selling pressure late Wednesday and the US Dollar Index (DXY) erased all of Tuesday's gains. The DXY stays on the back foot and trades below 106.50 early Thursday as investors reassess the Federal Reserve's policy outlook. Later in the session, the US Bureau of Economic Analysis will release its first estimate of the second quarter of Gross Domestic Product (GDP) growth. The US Department of Labor's weekly Initial Jobless Claims will also be looked upon for fresh impetus. The European docket will feature German inflation figures and the business sentiment data for the eurozone. 

The Fed announced on Wednesday that it hiked the policy rate by 75 basis points to the range of 2.25-2.5%. During the press conference, Chairman Jerome Powell said that they will not be providing any rate guidance from now on. Regarding the policy outlook "our thinking is that we want to get to a moderately restrictive level by end of this year," Powell noted. "That means 3% to 3.5%."

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The Nasdaq Composite Index gained more than 4% on Wednesday and the S&P 500 Index gained 2.6%. Nevertheless, US stock index futures are trading in negative territory in the European morning, suggesting that investors are turning cautious ahead of the US GDP data. 

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EUR/USD climbed to a daily high of 1.0235 in the early European session on Thursday. With the negative shift witnessed in risk sentiment helping the dollar limit its losses, however, the pair retreated below 1.0200.

GBP/USD climbed to its highest level in four weeks at 1.2188 but went into a consolidation phase early Thursday. The pair trades in a relatively tight channel above 1.2170 in the European morning.

Gold capitalized on falling yields on Wednesday and advanced to a fresh two-week high above $1,740. The benchmark 10-year US Treasury bond yield is up 1% so far on Thursday, not allowing XAU/USD to gather further bullish momentum.

USD/JPY closed in negative territory on Wednesday and continues to push lower toward 135.50 on Thursday. On Friday, Tokyo CPI, Industrial Production and Unemployment data from Japan will be watched closely by market participants.

Bitcoin gained 8% on Wednesday but lost its momentum near $23,000. Ethereum touched its highest level since June 10 at $1,676 earlier in the day before retreating toward $1,600.