Forex Today: ECB policy announcements to ramp up volatility

Here is what you need to know on Thursday, September 8:

Ahead of the European Central Bank's (ECB) policy announcements at 1215 GMT, markets stay relatively quiet on Thursday. The ECB is expected to hike its policy rate by 75 basis points (bps) but some experts think there is still a relatively strong chance of the bank opting for a 50 bps rate increase. The ECB will also release its updated economic projections and ECB President Christine Lagarde will deliver her remarks on the policy decisions at a press conference starting at 1245 GMT. Meanwhile, FOMC Chairman Jerome Powell's speech at 1310 GMT will be watched closely by market participants as the Fed prepares to go into the blackout period on Saturday.

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After reaching its highest level in 20 years at 110.78 on Wednesday, the US Dollar Index turned south during the American trading hours and ended up losing more than 0.5% daily. The risk-positive market environment, as reflected by the decisive rebound in Wall Street's main indexes, made it difficult for the dollar to preserve its strength. Additionally, the Fed said in its Beige Book that firms were seeing progress on labor supply and price pressures, putting additional weight on the greenback's shoulders. US stock index futures trade in negative territory in the European morning and the benchmark 10-year US Treasury bond yield is posting small losses at around 3.25%, pointing to a cautious market environment.

EUR/USD gained nearly 100 pips on Wednesday and tested the key parity mark early Thursday before going into a consolidation phase. 

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GBP/USD slumped to its weakest level since March 2020 near 1.1400 on Wednesday after Bank of England officials adopted a cautious tone on the policy and economic outlook. With the dollar facing heavy selling pressure in the American session, the pair recovered toward 1.1500. As of writing, GBP/USD was down 0.35% on the day at 1.1485.

AUD/USD stays on the backfoot early Thursday and trades deep in the red below 0.6750. The data from Australia showed in the early Asian session that Exports declined by 9.9% on a yearly basis in July.

USD/JPY retreated from the multi-decade high it set at 145.00 on Wednesday but closed the day in positive territory. The pair stays relatively quiet below 144.00 early Thursday. The data from Japan showed that the economy expanded at an annualized rate of 3.5% in the second quarter, surpassing the market expectation of 2.9%.

Gold capitalized on falling US yields on Wednesday and registered strong daily gains. XAU/USD is moving sideways in a narrow channel below $1,720 in the European morning.

The Bank of Canada (BoC) hiked its policy rate by 75 bps to 3.25% as expected on Wednesday. In its policy statement, the BoC noted that rates will need to rise further given the inflation outlook. USD/CAD fell nearly 100 pips from the multi-week high it touched above 1.3200 during the American session on Wednesday and the pair was last seen fluctuating in a tight range below 1.3150.

Following Tuesday's sharp decline, Bitcoin gained nearly 3% on Wednesday but lost its bullish momentum before reaching $20,000. Ethereum found support near $1,500 and rose 4.5% on Wednesday. ETH/USD is trading in negative territory early Thursday but manages to stay above $1,600.