EUR/USD holds gains above 1.0400 ahead of GDP Q4, ECB policy decision

• EUR/USD gains some ground due to a technical downward correction the US Dollar.
• The USD could appreciate amid the Fed's cautious stance on monetary policy.
• Traders expect the ECB to deliver a 25 basis point rate cut at its monetary policy meeting on Thursday.

EUR/USD inches higher after three consecutive losses, trading around 1.0420 during Asian hours on Thursday. The uptick is driven by a technical pullback in the US Dollar (USD). Meanwhile, the US Dollar Index (DXY), which measures the greenback against six major currencies, hovers slightly below 108.00 at the time of writing.

However, the pair's gains may be limited as the USD could regain strength following the Federal Reserve's (Fed) cautious stance on monetary policy. The Fed reinforced its hawkish outlook by removing language that signaled confidence in inflation reaching its 2% target.

During the press conference, Fed Chair Jerome Powell reiterated that the central bank would require "real progress on inflation or some weakness in the labor market" before considering any policy adjustments. As widely expected, the Fed kept its overnight borrowing rate unchanged at 4.25%-4.50% during its January meeting on Wednesday. This decision follows three consecutive rate cuts since September 2024, amounting to a total reduction of one percentage point.

Meanwhile, the Euro faces headwinds as the European Central Bank (ECB) is expected to cut rates by 25 basis points at its monetary policy meeting on Thursday, bringing the Deposit Rate down to 2.75%. Market participants anticipate further ECB rate cuts in the coming months, potentially pressuring the Euro.

Traders will also focus on the upcoming fourth-quarter Gross Domestic Product (GDP) data from the Eurozone and Germany, set for release on Thursday. Later in the North American session, attention will shift to the US Gross Domestic Product Annualized report.