Peter Nurse

Investing.com — The U.S. currency rebounded in European trading Tuesday morning, assisted by the aggressive rate hike comments of Federal Reserve Governor Christopher Waller. But, still, its first month-end drop in five years is likely, particularly against the recovering euro.

After falling to 101.29 overnight, the, which monitors the greenback in relation to six other currencies at 3:00 AM ET (0700 GMT), traded 0.3% lower at 101.610.

The dollar received a boost from comments by Federal Reserve Governor , who indicated he was in favor of raising in half-percentage point steps until is easing back toward the U.S. central bank’s goal.

“I support tightening policy by another 50 basis points for several meetings,” he said in remarks prepared for delivery on Monday in Frankfurt. “In particular, I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2% target.”

To cool inflation at its highest point in 40 years, the Fed raised the Fed’s benchmark interest rate by half a percentage point in this month. It also indicated that the Fed would continue to raise the Fed’s target for June and July. There was a growing expectation that the Fed would then take a break to examine the effects of the moves.

Waller’s comments helped arrest the greenback’s slump, particularly versus the euro as markets repositioned in anticipation of interest rate hikes in Europe.

After hitting an overnight high of 1.0786, the stock fell 0.2% to 1.0752. The price also rose to its highest in over 50 years in May, thanks to rising food and energy costs.

A 2.2% increase in euro’s value in May is expected, marking its largest monthly gain in one year.

Data is expected to be available Tuesday. Economists expect the index will reach a new record of 7.7% in June, an increase from 6.4% in April. The stronger than anticipated German data suggests that there is a chance this might also come in higher than expectations.

Last week, the President of the ECB stated that the deposit rates should rise in July. They could then be “slightly higher” or at zero by September. Then they will increase further to “towards neutral.”

“Recent reports suggest the speculative community has been cutting its short euro positions,” said analysts at ING, in a note. ”Yet we do not think there are strong arguments for EUR/USD to move back to and above 1.10. After all, the surge in energy prices is being more keenly felt in Europe and the deterioration in Europe’s terms of trade has damaged the euro’s medium-term fair value.”

Other markets fell 0.3% at 1.2617 but are still on track for their first monthly increase in 2022. The risk-sensitive fell 0.1% to 0.7193, and dropped 0.2% to 0.6540.

rose 0.2% to 127.86, still set for its weakest month since July last year, while fell 0.1% to 6.6580, with the yuan still buoyed by China’s progress out of virus lockdowns.

rose 0.6% to 367.61 and rose 0.4% to 395.18 ahead of the latest meeting of Hungary’s central bank. 

As it fights record inflation, the bank will likely raise its rate by 60 basis point to 6.6%.