Investing.com - The euro was down more than 1% against the dollar on Wednesday after a senior European Central Bank policymaker warned that the risks to its short-term inflation target have increased and hinted at fresh easing to combat deflation.
EUR/USD was down 1.16% to 1.1386, extending its pullback from the eight-month highs of 1.1713 hit on Monday.
The single currency moved lower after ECB Executive Board member Peter Praet said lower commodity prices and signs of economic weakness mean there is an increased risk that the euro area will miss its inflation targets.
He also indicated that the ECB is prepared to scale up its asset purchase program, known as quantitative easing, if necessary.
“There should be no ambiguity on the willingness and ability of the governing council to act if needed,” he said.
The single currency had strengthened in recent sessions as investors fled to the relative safe-haven currencies amid intense volatility in markets which was sparked by fears over a China-led slowdown in global economic growth.
Investors have also been borrowing the low-yielding euro to fund investment in risk assets.
The euro received an additional boost as fears over the global economic outlook prompted investors to scale back expectations for an initial rate hike by the Federal Reserve in September.
But expectations for a U.S. rate hike were revived after data on Wednesday showed that core capital goods orders, a closely watched proxy for business spending, rose 2.2% last month, the biggest increase since June last year.
Total durable goods orders increased 2.0% last month, compared to expectations for a decline of 0.4%.
Market sentiment had received a boost earlier in the day after China’s central bank injected 140 billion yuan into the money market to avoid a liquidity crunch.
The People’s Bank of China announced plans for cheap loans to lenders, who have suffered after an increase in capital outflows following the devaluation of the yuan earlier this month.
The move came after the Shanghai stock market fell again on Wednesday, as Tuesday's interest rate cut failed to alleviate fears over the slowing economy.
Elsewhere, the euro was lower against the yen and the pound, with EUR/JPY down 0.64% to 136.02 and EUR/GBP sliding to 0.7304.
The dollar was higher against the yen, with USD/JPY up 0.65% to 119.60, not far from highs of 119.90.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.98% to 94.84.