The US dollar was on the defensive on Thursday after the minutes from the Federal Reserve's last policy meeting showed policymakers were increasingly wary of recent softness in inflation and could delay a rate hike.
The readout of the July 25-26 meeting showed that some members called for halting interest rate hikes until it was clear the inflation trend was transitory, but it also indicated the Fed was poised to begin reducing its $4.2 trillion portfolio of bonds.
The Euro traded at $1.1771, having gained 0.3 per cent the previous day and recovering from low of $1.1681, its lowest level in nearly three weeks.
The dollar also stepped back to 110.01 Yen from Wednesday's high of 110.95. The dollar's index against a basket of six major currencies slipped to 93.46 from Wednesday's three-week high of 94.145.
“There's no change in market expectations that the Fed will announce the start of balancesheet reduction in September. But markets think there's risk to the scenario of a rate hike in December,” said Shunsuke Yamada, chief Japan FX strategist, Bank of America Merrill Lynch.
Money market futures are pricing in about a 40 per cent chance the Fed will raise rates by December, compared to just under 50 per cent before the Fed's minutes.
The dollar's diminishing rate hike prospects gave a big boost to other major currencies that compete with the dollar for yield attraction.
The Canadian dollar had gained more than 1 per cent on Wednesday and last stood at C$1.2622 to the dollar, near its highest level in almost two weeks.
The Australian dollar rose 1.3 per cent, its biggest daily gain in about a month, on Wednesday and last stood at $0.7933, having erased its losses in the past week or so.
The US dollar was also undermined by worries over US President Donald Trump's ability to implement his economic policies after he disbanded two high-profile business advisory councils.
The move came after several chief executives quit in protest over his remarks blaming weekend violence in Virginia not only on white nationalists but also on anti-racism activists who opposed them. “I would expect more US political risks in September as the debt ceiling issue will be coming up. We could see more volatilities in markets,” said Merrill's Yamada.
The Congressional Budget Office has said US lawmakers need to raise the debt ceiling by mid-October to avoid defaulting on debt payments.