The dollar is down ahead of the ECB meeting, bets on a less hawkish Fed are mounting.

On Thursday, most Asian currencies fell, as investors walked away from a recent rally to lock in profits, while the dollar was only pinned near one-month lows as markets bet on a less hawkish Federal Reserve.

The markets are betting that there will be a slowdown in the U.S. economy, which will force the Federal Reserve to ease its pace of interest rate hikes - a belief that pulled down the dollar and also weighed on U.S. Treasury yields. While, the Japanese yen recovered further against the dollar on Thursday, in the wake of the Japanese government intervening for the second time in the currency market. There is wide expectation that, when the Bank of Japan makes its interest rate announcement on Friday, it will keep interest rates at ultra-low levels.

Additionally, the Chinese yuan added 0.5% to the losses, as the data showed that China's industrial profits sank for a third consecutive month in September. However, on Wednesday, the yuan hit a two-week high on reports that the Chinese government intervened in foreign exchange markets to support the currency, bringing the currency to a two-week high. There has also been a rebound in the currency after dipping to a 14-year low earlier this month.

Crude oil

Other currency holders also benefit from a weak dollar, as it makes greenback-denominated crude less expensive. As oil prices continued to rise on Thursday, they extended the more than 3% rally they experienced on Wednesday. Also, U.S. crude exports broke records for the first time in a year, boosting prices, though gains in Asia were capped due to lingering concerns about slack demand in China.

According to government data released on Wednesday, U.S. crude stocks increased by 2.6 million barrels last week, with crude exports reaching 5.1 million barrels a day for the first time ever, a record high.

In view of this, solid U.S. crude exports have raised optimism over the demand situation and led to fresh purchases of crude oil. There is, however, some concern over the possibility of China's misguided economic policies continuing under President Xi Jinping's growing power, and this has limited Asian gains.

Gold

It can be said that the prospect of a less hawkish Fed has also provided a lot of relief to gold prices, given that rising interest rates this year severely reduced the appeal for the yellow metal.

While the Fed is expected to soften its hawkish stance in the future, U.S. interest rates are expected to remain elevated until at least 2024, which will keep gold prices subdued throughout this period. The price of bullion rose nearly 1% on Wednesday, making it the third consecutive session that the metal has been rising. These gains now put the yellow metal right on the verge of crossing the $1,700 mark as its next major milestone.

Events of the day

On the data front, investors will be closely watching the ECB meeting on Thursday, at which the bank is expected to hike rates by 75 basis points as part of its policy decision. A more-than-expected hawkish stance from the ECB may provide more support to the euro, which is hovering in the parity zone at present. The dollar can be further pressured by such a move.

As part of the day's highlights, we also have the US gross domestic product for the third quarter on Thursday. It is expected that the report will show that underlying demand in the economy remained flat last quarter despite a slowdown in consumer spending and a moderate rise in business investment.

While the third quarter of this year may have seen a rebound in U.S. economic growth as a result of a shrinking trade deficit, this would vastly overstate the economy's health since the Federal Reserve's aggressive interest rate increases have dampened demand.