The US Federal Reserve looks set to pursue its monetary tightening agenda, but dollar bulls have taken a step back following some slight dovish undertones in the minutes of the central bank's last meeting.
At the 3 May meeting, the Fed agreed to keep the Fed funds rate at 0.75%-1%, having raised it by a quarter of a percentage point at its March meeting.
While markets appear to have priced in a further rate increase at the June meeting, the Fed minutes introduced a sliver of doubt about Fed policy beyond June.
June rate rise still likely
The Fed had eyed three quarter-point moves for this year, having signalled at the 15 March meeting that it expected two further increases in 2017.
Since the March meeting, however, the US economy has been seen to have hit a patch of sluggish activity and some doubt has been raised about the schedule of further rate hikes.
"Although expectations of a rate hike in June were realised when Federal Reserve officials said it would 'soon be appropriate' to raise rates again, the longer-term hiking path remains clouded," says Lukman Otunuga at FXTM.
‘Transitory’ soft patch
While the labour market has continued to add jobs and reduce unemployment and inflation runs close to the Fed's target rate, gross domestic product growth of 0.7% in the first quarter was disappointing.
The central bank notes in the minutes: "Although the incoming data showed that aggregate spending in the first quarter had been weaker than participants had expected, they viewed the slowing as likely to be transitory."
But the Fed's monetary policy committee members introduced enough doubt into this forecast that markets have started to take note.
The following note of caution has put the dollar under pressure and seen Treasury yields dip.