The dollar rebounded early in the European trading session on Monday after a sharp drop last week as comments from U.S. Federal Reserve Governor Christopher Waller prompted a reassessment of the central bank’s future monetary policy.

At 03:00 Eastern Time (08:00 GMT), the dollar index, which tracks its exchange rate against a basket of six other currencies, was trading 0.4% higher at 106.550, up from Friday’s nearly three-month low of 106.28.

The index fell 4% last week, marking the worst week for the dollar in more than 2.5 years.

Thursday’s publication of a lower-than-expected U.S. inflation reading for October caused the dollar to fall sharply amid heightened expectations that the Fed would decide to temper its determined campaign to tighten monetary policy earlier than expected and possibly raise rates by only 50 basis points in December.

However, Waller tried to shatter that optimism, saying in an interview over the weekend that the market shouldn’t get carried away with just one “data point.”

He added that the Fed may consider slowing the pace of rate hikes at its next meeting, but this should not be seen as “easing” the fight against inflation.

“We can now expect a period of heightened market sensitivity to the Fed’s remarks, as investors will try to assess which Fed member the latest inflation data has convinced to pause tightening,” ING analysts said in a note.

“We believe a sustained downtrend in the dollar is premature as a Fed pivot is not yet a given and risk assets continue to face various headwinds.”

EUR/USD fell 0.2% to 1.0332, risk-sensitive AUD/USD traded unchanged at 0.6702 and GBP/USD fell 0.4% to 1.1787, giving back some of the strong gains seen last week.

Pound traders will focus on Thursday’s Autumn Statement, where UK Finance Minister Jeremy Hunt is expected to outline a plan for significant tax hikes and spending cuts to help plug a large hole in the public finances.

USD/JPY rose 0.5% to 139.44; with the yen remaining below the key psychological 140 level, having earlier dipped below it for the first time in 2 months, as US Treasury yields fell amid the latest US inflation data.

USD/CNY fell 0.9% to 7.0428; with the yuan rising to its strongest level in nearly 2 months amid growing optimism over easing of some tough COVID-19 measures.