The U.S. dollar rose in early trading in Europe on Tuesday, helped by comments from Federal Reserve Governor Christopher Waller about raising interest rates quickly. However, the dollar is still on track for its first monthly drop in five months, especially when compared to the rising euro.
At 3 AM ET (0700 GMT), the Dollar Index, which compares the dollar to a basket of six other currencies, was down 0.3% to 101.610, after hitting a five-week low of 101.29 the night before.
Christopher Waller, a governor of the Federal Reserve, said that he thought interest rates should go up in half-point steps until inflation went back to where the U.S. central bank wanted it to be. This made the dollar stronger.
In prepared remarks for Monday in Frankfurt, he said, “I support tightening policy by another 50 basis points for several meetings.” “In particular, I won’t rule out 50 basis-point hikes until I see inflation getting closer to our 2 percent goal.”
This month, the Fed raised interest rates by a half point to stop the highest inflation in 40 years. The Fed has also said that June and July rate hikes of the same amount should be expected. But people were getting more and more used to the idea that the central bank would stop and look at the effects of these moves.
Waller’s comments helped stop the dollar’s fall, especially against the euro, as markets changed their positions in preparation for interest rate hikes in Europe.
EUR/USD dropped 0.2 percent to 1.0752 after hitting a five-week high of 1.0786 the night before. In May, rising energy and food prices in Germany caused inflation to reach its highest level in almost 50 years.
The euro is also expected to rise by 2.2% in May. This would be the biggest monthly gain in a year.
The CPI data for the Eurozone will be released later on Tuesday. Economists expect the index to hit a new record high of 7.7% in May, up from 7.4% in April. But the fact that the German data was better than expected suggests that this could also be better than expected.
Christine Lagarde, the president of the ECB, said last week that the deposit rate should start going up in July and could be at zero or “slightly above” by the end of September. After that, it should keep going up “towards the neutral rate.”
Analysts at ING said in a note, “Recent reports suggest that speculators have been reducing their short euro positions.” “But we don’t think there are strong reasons for EUR/USD to move back to and above 1.10.” After all, Europe is more affected by the rise in energy prices, and the decline in Europe’s terms of trade has hurt the euro’s fair value in the medium term.
GBP/USD fell 0.3% to 1.2617, but it is still on track for its first monthly rise in 2022. Risk-sensitive AUD/USD fell 0.1% to 0.7193, and NZD/USD dropped 0.2% to 0.6540.
USD/JPY went up 0.2% to 127.86, but it is still on track to have its weakest month since July of last year. On the other hand, USD/CNY went down 0.1% to 6.6580, as China’s progress out of virus lockdowns kept the yuan strong.
Before the latest meeting of Hungary’s central bank, the USD/HUF rose 0.6% to 367.61 and the EUR/HUF rose 0.4% to 395.18.
It is expected to raise its benchmark rate by 60 basis points to 6%, which is half the rate of rate hikes seen in March and April. This will slow down the size of its monthly interest rate hikes as it tries to stop record inflation.
