NEW YORK, Aug 17 (Reuters) – The U.S. dollar pared gains on Wednesday after minutes from the Federal Reserve’s July meeting showed Fed officials worried the U.S. central bank could raise rates too much in as part of its commitment to controlling inflation.

In an overview of the emerging central bank debate, “many” participants noted a risk that the Fed “could tighten the policy stance more than necessary to restore price stability,” a fact they said made sensitivity to incoming data all the more important, the minutes showed. Read more

“Some Fed participants were noting that interest rate-sensitive sectors had begun to show signs of slowing and that some participants saw a risk of excessive tightening,” said Brian Daingerfield, head of the G10 FX strategy at NatWest Markets in Stamford. , Connecticut.

It comes after Fed Chairman Jerome Powell said at the July meeting that the impact of the Fed’s rate hikes to date is still growing in the economy, and depending on the reaction of the inflation in the coming months, this could allow the central bank to begin to slow the pace of rate increases. Read more

“I think that combination gives the minutes a bit of a dovish feel to what we heard from FOMC officials following the meeting,” Daingerfield said.

The dollar index fell to 106.39 after the release of the meeting minutes, before rebounding to 106.55, up 0.09% on the day.

The size of the Fed’s next rate hike is likely to depend on consumer price inflation and jobs data for August, which will be released ahead of its September meeting.

The probability of a 75 basis point hike in September fell to 40% after the meeting minutes, from 52% earlier on Wednesday, with a 50 basis point hike now considered a 60% probability .

Easing financial conditions as benchmark 10-year Treasury yields hold below 3% and credit and equity markets improve has also heightened speculation that the Fed may need to be more aggressive in raising rates to have an impact.

Wednesday’s retail sales data was strong, helping to lessen concerns about an economic slowdown. Read more

“Everyone is focused on – well, will we really see the Fed being in a position where they have to do more massive rate hikes and can the economy handle that, and right now the economy seems to be able to do it,” said Edward Moya, senior market analyst at OANDA in New York.

The euro gained 0.13% on the day against the dollar at $1.0185. The greenback gained 0.55% against the yen at 134.97.

The Australian dollar fell 1.23% as concerns over Chinese demand for commodities, including iron ore, hurt the currency’s appeal.

The New Zealand Dollar also fell 0.98%, erasing earlier gains in volatile trading on what was likely profit taking during the initial move.

New Zealand’s central bank made its seventh consecutive interest rate hike on Wednesday and signaled a more hawkish tightening path over the coming months to rein in stubbornly high inflation, which briefly boosted the currency. Read more

The pound also faded after an initial jump on data showing consumer price inflation in Britain hit 10.1% in July, the highest level in 40 years. Read more

The British pound was last down 0.34% on the day at $1.2059.

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Currency bids at 3:15 p.m. (7:15 p.m. GMT)

Additional reporting by Iain Withers in London Editing by Mark Potter

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