Wednesday 21:00 GMT. US government bonds rallied hard and the dollar pared early gains as the markets interpreted the minutes of the Federal Reserve’s January policy meeting as more dovish than had been expected.

The minutes showed “many” members of the Fed’s Open Market Committee were concerned that a “premature” rise in interest rates could hurt US economic growth and the recovery in the labour market.

However, they also noted that “several” members had expressed worries that a late rise in rates could lead policy to be “excessively accommodative” — leading to high inflation.

Anthony Karydakis, chief economic strategist at Miller Tabak, said the discussion over the timing of the first rate rise appeared fairly balanced. “However, at the very minimum, it appears to us that the Committee members were far from approaching a consensus in favour of a June rate hike,” he said.

“If anything, the arguments in favour of an earlier versus a later rate hike seemed balanced with a possible tilt toward the latter outcome.”

That was certainly the view adopted by the bond market, as the yield on the 10-year Treasury — which moves inversely to its price — extended an early fall to stand 7 basis points lower at 2.08 per cent. The more policy-sensitive two-year yield was down 7bp at 0.60 per cent.

The dollar gave back some of its early rise against a weighted basket of currencies to trade less than 0.1 per cent higher. The euro, which had fallen as low as $1.1335, was down 0.1 per cent at $1.1402.

Gold recovered from an early dip below the $1,200 an ounce level to trade $2 higher at $1,211.

Nick Stamenkovic, macro strategist at RIA Capital Markets, said the focus would now shift to Fed chairwoman Janet Yellen’s semi-annual testimony on the economy and monetary policy before the Senate Banking Committee next week.

“Investors will watch closely for signs that the Fed will drop its “patient” language at March’s FOMC meeting,” he said. “Failure to do so would support short-dated Treasuries as fears of an early rate hike fade.”

The minutes had a muted impact on US equities, however. The S&P 500 slipped less than 0.1 per cent from Tuesday’s record closing high of 2,100, having earlier been down as much as 0.4 per cent.

Wall Street shrugged aside a 3.2 per cent drop in the price of Brent crude oil, to $60.53.

Across the Atlantic, expectations that Greece would secure a deal with its creditors helped European stocks climb to fresh seven-year highs.

Athens outlined plans for overhauling its international bailout ahead of an expected request on Thursday to seek an extension of its existing EU rescue loan, which expires next week.

But the German finance ministry said the discussion was not just about simply extending the current programme but bringing it to a “successful conclusion” — suggesting negotiations ahead were likely to remain difficult.

Nevertheless, markets remained relatively sanguine about the prospects for a deal. Greek equities rallied 1.1 per cent and the country’s three-year government bond yield fell 114 basis points to 17.40 per cent, according to Bloomberg — well down from the 22 per cent level seen last week.

The pan-European FTSE Eurofirst 300 rose 0.7 per cent to the highest close since early 2008, and yields on most other “peripheral” eurozone sovereigns eased back. The German 10-year Bund yield edged up 1bp to 0.38 per cent.

“If Greece does secure a six-month loan with palatable conditionality then sovereign spreads should tighten further from here,” said Riccardo Barbieri, chief European economist at Mizuho.

“However, one should make a distinction between the near-term relief of imminent default being priced out, and the uncertainty that will remain as to whether the Greek government will find a compromise with eurozone partners. “

The ECB approved a €3.3bn increase in emergency support for Greek lenders. According to reports in the Greek press, deposit outflows in recent days have reached €300m-€500m a day.

Meanwhile, the 10-year UK gilt yield climbed another 8bp to 1.85 per cent, while sterling was up 0.6 per cent against dollar at $1.5446, as robust labour market and earnings data highlighted the continuing improvements in the UK economy.

However, while the minutes of the last meeting of the Bank of England’s Monetary Policy Committee indicated a unanimous vote to keep interest rates ion hold, one member suggested the next move could be a cut.

The Bank of Japan, meanwhile, maintained its ultra-accommodative policy stance but upgraded its assessment of the economy by highlighting progress in industrial production and exports.

“[BoJ] governor Haruhiko Kuroda expressed the usual confidence about Japan’s economic prospects and the likelihood of price pressures picking up,” said Marcel Thieliant at Capital Economics.

“But with the recent economic data disappointing and inflation set to turn negative soon, we still think that policy makers will announce more stimulus in late April.”

The Nikkei 225 jumped 1.2 per cent to the highest since mid-2007.

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