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Dollar gains for a second day as stocks recover

he dollar rebounded for a second straight session on Wednesday as calm returned to financial markets with Wall Street stocks firmer and European shares recouping some losses, all of which reduced the need to buy safe-haven currencies like the yen.
China’s central bank increased efforts to shore up sentiment, pumping $21.8 billion into the money market, a day after it cut interest rates and relaxed reserve requirements for some large banks.
In addition, an upbeat U.S. durables report boosted the dollar, although the data hardly changes the market’s view that the Federal Reserve will likely delay raising interest rates given the recent market turmoil.
New York Fed President William Dudley on Wednesday bolstered expectations of a delay in the Fed’s rate increase. He said a September rate hike seemed less compelling than just a few weeks ago, although he added that “short-term” market volatility did not have significant implications for the U.S. recovery. The dollar briefly pared gains against the euro and yen after his remarks.
“This is a resounding signal that the probability of the September rate hike has diminished considerably, as Dudley acknowledged the external risks,” said Mark Luschini, chief investment strategist, at Janney Montgomery Scott in Pittsburgh.
In late trading, the euro was down 1.6 percent at $1.1335 , with the single currency also hurt by comments from a senior European Central Bank official. Peter Praet said the risk of the ECB missing its inflation target has increased due to commodity price falls and weakness in some overseas economies.
The dollar was up 0.8 percent at 119.80 yen , having slumped to a 7-month low of 116.16 on Monday.
The greenback has been supported as well by data showing that U.S. durables good order rose 2.0 percent in July, while non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 2.2 percent last month, the biggest rise since June last year.
Both the euro and the yen have been underpinned after the current market turmoil prompted an unwinding of carry trades.
In carry trades, investors sell a low-yielding currency to buy a riskier asset or currency for higher returns. But when volatility rises and markets come under stress, these trades are unwound.
The dollar traded above 125 yen while the euro was below $1.10 just two weeks ago, before widespread risk aversion swept financial markets and drove investors to buy back the yen and euro.

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