Forex Today: EU and US inflation to drive markets on last trading day of Q3

Here is what you need to know on Friday, September 29:

The US Dollar (USD) struggles to find demand early Friday after registering losses against its major rivals on Thursday. Harmonized Index of Consumer Prices (HICP) inflation data from the Euro area and the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred gauge of inflation, figures from the US will be watched closely on the last trading day of the third quarter.

The positive shift seen in risk mood caused the USD to lose interest in the American session on Thursday and the USD Index (DXY) snapped a four-day winning streak. In the European morning, DXY holds steady near 106.00. The benchmark 10-year US Treasury bond yield retreated below 4.6% and closed in negative territory, after touching a fresh multi-year high near 4.7%.

Meanwhile, Wall Street's main indexes registered gains even though Democrats and Republicans are yet to come to terms to approve a budget and avoid a government shutdown. Early Friday, US stock index futures trade flat on the day. On a yearly basis, the PCE Price Index is forecast to rise 3.5% in August, compared to 3.3% in July. The Core PCE Price Index, which excludes volatile food and energy prices, is expected to increase 3.9%, down from 4.2% growth recorded in July. 

EUR/USD gathered recovery momentum and registered gains on Thursday before continuing to stretch higher toward 1.0600 on Friday. HICP inflation in the Euro area is seen softening to 4.5% in September from 5.2% in August. 

GBP/USD gained more than 50 pips on Thursday and climbed above 1.2200 early Friday. The UK's Office for National Statistics reported on Friday that the real GDP expanded by 0.2% on a quarterly basis in the second quarter, matching the market expectation and the first estimate.

USD/JPY reversed its direction and closed in negative territory on Thursday after climbing above 149.50. The pair stays relatively quiet early Friday and trades slightly above 149.00. Japanese Finance Minister Shun'ichi Suzuki  repeated that they are watching the moves in foreign exchange markets carefully and added that they remain prepared to take appropriate action against excessive moves. In the meantime, the data from Japan showed that the Tokyo Consumer Price Index rose 2.8% on a yearly basis in September. 

Statistics Canada will release Gross Domestic Product (GDP) for July later in the day. Ahead of this data, USD/CAD stays in negative territory slightly below 1.3500. The Canadian economy is expected to register a monthly growth of 0.1% following the 0.2% contraction recorded in June.

Gold declined sharply for the fourth straight day on Thursday and touched its lowest level since early March below $1,860. With US T-bond yields starting to retreat, XAU/USD managed to stage a rebound and was last seen trading near $1,870.