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(Updates at 1158 GMT)
By Samuel Indyk and Brigid Riley
LONDON, Nov 22 (Reuters) - The dollar rebounded from a 2-1/2 month low on Wednesday as the minutes from the Federal Reserve's last meeting hinted that interest rates would likely remain restrictive for some time, even as the rate-hike cycle appeared to be over.
The Fed minutes showed the central bank would proceed "carefully" and that "all participants judged it appropriate to maintain" the current rate setting.
Fed officials agreed they would raise interest rates only if progress in controlling inflation faltered, reiterating recent comments by policymakers that left the door open for more tightening even as markets have moved to price rate cuts from early next year.
Markets are all but certain that the Fed will hold rates at its December meeting, while pricing in about a 28% chance of a rate cut as early as March, according to CME's FedWatch Tool.
"Almost four rate cuts are fully priced for next year and that looks very aggressive," said Niels Christensen, chief analyst at Nordea.
"That said, it's not unusual for the Fed to cut by 50 basis points when they start cutting, so it could be possible," Christensen added.
The dollar index, which measures it against a basket of currencies, was 0.1% higher at 103.68, pulling away from its lowest level since the end of August at 103.17 it touched on Tuesday.
The index is down about 2.8% in November and on course for its biggest monthly drop in a year.
Analysts said market participants were eager to take money off the table before liquidity fizzles out before the U.S. Thanksgiving holiday.
High U.S. Treasury yields, which have buoyed the dollar, have also tumbled from multi-year highs hit in October as investors ramp up bets that the Fed has finished increasing rates following a slowdown in U.S inflation in the same month.
Treasury yields slipped again on Wednesday, with the yield on the benchmark 10-year note last at 4.3751%.
The euro last sat at $1.0899 after rising to $1.09655 on Tuesday, its highest against the dollar since mid-August.
Sterling was little changed at $1.2534, not far from a two-month high of $1.2558 touched on Tuesday.
Britain's finance minister, Jeremy Hunt, announces his Autumn Statement later on Wednesday which is likely to include tax cuts for business and possibly some voters too.
"We think some looser fiscal policy will be welcomed by sterling at this juncture," said ING strategist Chris Turner.
The Japanese yen was off 0.3% to 148.81 per dollar, after hitting a two-month high of 147.155 on the dollar on Tuesday.