Dollar broadly stronger; Euro shaken as ECB says inflation target at risk, further stimulus possible

The dollar extended gains against the other major currencies on Wednesday, as the previous session's strong U.S. data continued to support and as market volatility eased after China cut interest rates.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 1.11% at 94.98.

EUR/USD was last at 1.1368, lower 1.34%.

Earlier Wednesday, the European Central Bank’s chief economist said the bank is ready to expand its economic stimulus program if necessary, as the risk that the ECB will miss its medium-term inflation target has risen due to lower commodity prices and signs of economic weakness.

“Developments in the world economy and commodity markets have increased the downside risk to achieving the sustainable inflation path towards 2%; the risk has increased," ECB Executive Board member Peter Praet said.

Inflation in the euro region climbed just 0.2% in July, far short of the ECB’s target of close to but just below 2%.

He also said that the ECB is ready to extend its quantitative easing program if necessary.

“The governing council will closely monitor all incoming information,” he said. “There should be no ambiguity on the willingness and ability of the governing council to act if needed.”

The central bank is currently buying €60 billion a month of bonds and asset-backed securities under its monetary stimulus program, which is scheduled to run until September 2016.

A day earlier, ECB Vice President Vitor Constancio said the central bank is prepared to use all the instruments available if needed to ensure price stability.