HONG KONG: The euro gave up some of its recent gains on Tuesday but was still set for its best month in a year as markets reposition themselves in anticipation of interest rate hikes in Europe and the possibility of a slowdown in the pace of rate hikes in the United States.
The euro was at $1.0745, down 0.3%, after hitting a five-week high of $1.0786 overnight, as German inflation hit its highest level in near half a century in May due to soaring energy and food prices.
That bolsters the case for more aggressive rate hikes from the European Central Bank, which is expected to start raising rates in July for the first time since the pandemic began.
Eurozone CPI data is due later on Tuesday, and TAUT analysts said the German data implied a possibility that it could also beat expectations.
Additionally, “there are a number of ECB officials speaking tonight, no doubt discussing the outlook for higher European interest rates,” they said in a note to clients.
The euro is also set for a 2.2 percent gain in May, which would be its biggest monthly rise in a year.
The dollar index was at 101.63, after falling to a five-week low of 101.29 overnight. The index measures the greenback against six peers with the largest weighting given to the euro.
“Attention has shifted from higher inflation and further rate hikes to concerns about whether Fed tightening has put pressure on the economy, and that has caused the dollar to weaken. over the past few weeks,” said Redmond Wong, market strategist at Saxo Markets Hong. Kong.
He added, however, that there was no certainty the Federal Reserve would back away from an aggressive tightening pace, and pointed to overnight hawkish remarks by Fed Governor Christopher Waller, noting “So that trend of a weaker dollar could reverse.”
A rebound in sentiment toward riskier assets and currencies, partly caused by an easing of lockdowns in China’s financial hub of Shanghai, has also weighed on the safe-haven greenback recently, investors said.
The news that European Union leaders agreed in principle on Monday to cut most oil imports from Russia by the end of this year has boosted oil prices and boosted the currencies of the raw materials.
The Canadian dollar touched 1.2653 to the dollar, near a one-month high hit overnight. The Australian dollar has rebounded from its low of $0.7163, also helped by better than expected PMI data from China and was last seen around $0.7180.
Bitcoin was leading at around $31,600 after rising above $32,000 overnight for the first time in more than three weeks.
The pound was at $1.263 and is expected to post a monthly gain of 0.5% against the dollar, its first monthly rise in 2022.
The yen was at 128.15 to the dollar, weaker on the day but set for its strongest month since July last year.