By Saikat Chatterjee

LONDON (Reuters – Although the euro moved lower Tuesday, it still remained on track for its best month since 2011. This was despite hot inflation data. These will raise expectations that interest rates will rise from European Central Bank (ECB).

German consumer prices rose 8.7%, while Spanish inflation rates continued their upward march. This sets the scene for record-breaking eurozone aggregate inflation data in May. A Reuters poll expected a print of 7.7%.

The European Union is closing its ranks on Russian oil imports to reduce 90% by this year. However, markets are expecting aggressive rate increases of 115bps in the next six months of 2022.

Adam Cole, RBC Capital Markets’ chief currency strategist said that “the risk for eurozone aggregate data is substantially to the upside.” The ECB will likely make a substantial upward revision of its near-term inflation trajectory when it publishes the next round in staff forecasts, which is expected to be published in June.

After hitting a 5-week high of $1.0786 overnight, the euro fell 0.4% to $1.0737. A 2.2% rise is expected for the single currency in May. This would make it its highest monthly increase in one year.

Overnight gains by the euro supported dollar which was also helped by a rise in U.S. Treasury yields.

It was last at 101.71 after falling to 101.29 overnight.

News Monday’s agreement in principle by European Union leaders to reduce Russia’s oil imports for the year ended oil prices and supported commodity currencies.

Canadian Dollar touched 1.2653 dollars, close to a 1-month high overnight. The Bank of Canada meeting on Wednesday will determine if all 30 economists polled are expecting a rate rise of 50basis points to 1.50%.

It was around $31,600 on the front end, and had risen to $32,000 overnight for its first time in three weeks.