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European Session – Dollar gains on durable goods orders, euro slides as Praet talks QE

The dollar was generally stronger against the euro, sterling and the yen but not so much against the commodity currencies like the Canadian dollar or Australian dollars. Firmer US yields provided some support to the greenback and risk sentiment somewhat improved after Monday’s panic selling especially in equity markets, that was precipitated by China’s stock market tumble. Ever since Beijing undertook more stimulus measures which included rate cuts and liquidity injections, markets have appeared to be calmer.

Giving additional support to the dollar was a positive report on US durable goods orders which rose 2.0% in July after the revised 4.1% bounce in June (previously at 3.4%). The increase in July surprised markets which expected a fall of 0.4%. Durable goods orders excluding transportation rose 0.6% in July after the 1.0% gain in June (was 0.6%).

The dollar was mostly range-bound versus the yen during the European session between 118.44 and 119.82 before getting a burst higher to 119.90 on the durable goods data.

The euro climbed early in the session to a high of 1.1518 before falling after comments by ECB Executive Board member Peter Praet. The central banker said that he would consider more QE if needed, due to the risks to inflation in the Eurozone by the recent developments in the world economy and in commodity markets. The euro fell to as low as 1.1351.

Sterling extended yesterday’s fall against the dollar to reach 1.5560. Yesterday it had reached as high as 1.5818.

The Canadian dollar was able to recover some losses versus its US counterpart after weakening to an eleven-year low yesterday. USD/CAD slid to 1.3249 today from yesterday’s peak of 1.3352.

The focus will now turn to New York Fed President Dudley’s press conference later in New York. He will discuss the regional economy but the Q&A may be more interesting as he may be asked about Fed policy. Though he is not expected to give specific answers, his remarks will be scrutinized for any hints on next month’s decision.

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