The 25-year-old has made five appearances for Wolves this season after returning from a long-term knee injury.
“I am sure this loan spell will be extremely good for him and Watford,” said Wolves boss Mick McCarthy.
“Michael is fit to play and has already started two of our Premier League games this season.
“But having spoken to him he feels he needs to play maybe five or six games on the bounce, which is something he hasn’t been able to do in the last two years.
“We had a discussion and agreed that he should try and go out on loan where there’s a better chance of playing those games and helping him get towards the levels needed for the pace of the Premier League,” McCarthy told the Wolves club website.
