The US dollar is trading at the lowest levels seen since a week, putting a pause in its recent rally early on Thursday following the release of the latest FOMC meeting minutes in which policymakers raised concerns about high inflation. At the time of writing, the US dollar index DXY is trading around 93.89.

Although the meeting minutes confirm that the Fed will start tapering its asset purchases next month, the greenback came under pressure after policymakers worried about high inflationary pressures persisting for a longer period of time. Inflation could derail economic recovery from the pandemic, keeping consumers wary about spending more as prices of goods and services rise.

This fear was further reinforced after the release of the CPI data in the previous session, which revealed a strong pick-up in consumer prices during September. The CPI came in at +0.4% in September against August’s 0.3% reading, on the back of a 0.9% increase in food prices and soaring energy costs.

However, the inflation report does support expectations that the Fed would have to step in with monetary tightening measures sooner than anticipated. As a result, losses in the US dollar remain limited amid hopes for hawkish moves from the central bank.

Money markets maintain a 50% likelihood for the first rate hike since the pandemic to happen as soon as July 2022. If inflationary pressures persist, the Fed may start with a 25bp rate hike by next summer to help support the economic recovery.