Title: Dollar Rebounds, but Still Heads for Monthly Drop

May 31, 2022 03:01AM ET

By: AnalysisWatch

The US dollar rebounded in early European trade on Tuesday, helped by aggressive rate hike comments from Federal Reserve Governor Christopher Waller, but is still heading for its first monthly decline in five months, especially against the resurgent euro.

At 3 a.m., the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.3 per cent to 101.610, after hitting a five-week low of 101.29 overnight.

The dollar got a boost from comments by Federal Reserve Governor Christopher Waller, who said he favoured raising interest rates in half a percentage point increments until inflation stabilised towards the US central bank's target.

Waller's comments helped halt the greenback's slump, particularly against the euro, as markets repositioned themselves in anticipation of a rate hike in Europe.

The EUR/USD fell 0.2 per cent to 1.0752, after touching a five-week high of 1.0786 overnight as German inflation rose to its highest level in almost half a century in May, thanks to a surge in energy and food prices.

ECB President Christine Lagarde said last week that the deposit rate should start rising in July and could be at zero or 'slightly above' by the end of September before rising further 'towards the neutral rate'.

Elsewhere, GBP/USD fell 0.3% to 1.2617, but is still set for its first monthly rise in 2022, while the risk-sensitive AUD/USD fell 0.1% to 0.7193 and NZD/USD fell 0.2% to 0.6540.

USD/JPY rose 0.2 per cent to 127.86, but is still set to record its weakest month since July last year, while USD/CNY fell 0.1 per cent to 6.6580, with the yuan still supported by China's progress in exiting the virus bloc.

USD/HUF rose 0.6 percent to 367.61 and EUR/HUF rose 0.4 percent to 395.18 ahead of the Hungarian central bank's latest meeting.

Hungary's central bank is expected to raise its benchmark rate by 60 basis points to 6 per cent, halving the pace of rate hikes seen in March and April and reducing the scale of its monthly interest rate hikes in an attempt to tame record inflation.