The market was once again surprised by the report of the minutes of the FOMC meeting which signaled more dovish than expected.
According to minutes released early this morning, the majority of Fed policymakers agreed that a smaller interest rate hike would happen soon after assessing the impact of policy on the economy.
This is in line with statements that have been made by several Fed officials in recent years.
It in turn fueled market expectations that the Fed would implement a 50 basis point rate hike in December, following the previous consecutive 75 basis point increases.
Looking further into the minutes, although this meeting took place before the October inflation data was published, policymakers have begun to see some signs that price pressures are easing.
In addition, they also argue about the risk that rapid policy tightening could affect economic growth and financial stability.
As a result, smaller increases will give policymakers a chance to assess the impact of rate hikes.
Markets are also looking for clues about how far policymakers will need to continue raising rates next year to make satisfactory progress in the fight against inflation.
The minutes also indicated that the final rate may be higher than the Fed had previously expected, which the market predicted could be above the 5% level.
Following this release, the US dollar edged lower against most major currencies after also being hit by a dismal reading of US manufacturing and services PMI data in November.
