Dollar sets 13-month high as euro struggles on ECB easing expectations

SYDNEY/SINGAPORE (Reuters) - The dollar hit a 13-month peak against a basket of major currencies on Wednesday, with the euro still struggling amid expectations of further policy easing from the European Central Bank.

The dollar index rose as far as 82.727 at one point, its highest level since July 2013. It was last steady on the day at 82.648.

Data on Tuesday showed orders for U.S.-manufactured durable goods posted their biggest gain on record in July, while consumer confidence rose in August to its highest level since October 2007.

The eye-catching US data, albeit driven by a huge jump in aircraft orders, only served to bolster long dollar/short euro positions - a trade embraced in earnest after recent dovish comments from European Central Bank President Mario Draghi.

"Clearly markets are increasingly digesting the comments of Draghi...and interpreting it to mean that there's a risk of some sort of action in the near term, in the next meeting or so," said Mitul Kotecha, head of FX strategy Asia-Pacific for Barclays in Singapore, referring to the possibility of further monetary easing by the ECB.

The euro fell to as low as US$1.31525 on trading platform EBS earlier on Wednesday, its lowest in almost a year, bringing into play the Sept. 6 trough near US$1.3104. It last traded near US$1.3166, steady on the day.

Euro-selling against currencies such as the Canadian dollar and the Australian dollar helped drag the common currency lower, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.

There was also some euro-selling aimed at taking out option barriers at US$1.3150, but there were also bids for the euro at that level, Halley said.

Earlier on Wednesday, the euro touched its lowest level in nearly 10 months versus the Australian dollar at A$1.4109. Against the Canadian dollar, the euro set a nine-month low of C$1.4365.

With Draghi having rekindled prospects of more monetary stimulus, all eyes are on the ECB's policy meeting on Sept. 4.

"We now expect the ECB to take some further policy steps at next week's meeting," analysts at JPMorgan wrote in a note to clients. "While we still do not expect the ECB to actually deliver a sovereign QE programme, we think that the likelihood has increased substantially and that things could move very quickly."

The greenback took a breather versus many other currencies after its recent run higher. Against the yen, the dollar eased 0.1 per cent to 103.96 yen, staying below Monday's seven-month peak of 104.49 yen.

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