SINGAPORE--Asian shares climbed to fresh two-month highs on Tuesday, taking cues from a rally on Wall Street while the dollar languished near its lowest in two-and-a-half months on expectations the U.S. Federal Reserve is likely done with interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.97% higher at 510.11 having touched 511.05, the highest since Sept. 18. The index is up 7% for the month and on course for its biggest monthly gain since January.

With the economic calendar bare in Europe, the risk rally looks set to continue in European stock markets, with Eurostoxx 50 futures up 0.18%, German DAX futures 0.14% higher and FTSE futures up 0.01%.

Investor focus on Tuesday will firmly be on minutes of the Federal Reserve’s last meeting to gauge which way rates are headed and also on earnings from Nvidia, which hit a record high on Monday.

On Monday, Wall Street’s three major stock averages rose with Nasdaq’s 1% rally leading the charge as heavyweight Microsoft hit a record high after it hired Sam Altman, who headed OpenAI until he was ousted late last week.

Stock markets have broadly rebounded in November as a flurry of data that showed U.S. inflation might be easing has spurred bets that the Fed is done with monetary tightening and rate cuts may be on the way next year.

Traders have nearly fully priced in the likelihood that the Fed will keep interest rates unchanged in December, and some have started pricing in rate cuts as soon as March, according to the CME Group’s FedWatch tool.

Some remain cautious as economic data could change the monetary policy outlook.

"It only takes another strong inflation print or more consumer/labor market strength, and rates would head higher again," said Ben Bennett, APAC investment strategist for Legal and General Investment Management.

"My main concern is ... that we’ll see some disappointing data around the turn of the year, which will focus attention on the risk of recession."

Trading is expected to be muted for much of the week ahead of Thursday’s U.S. Thanksgiving holiday and a sparse data calendar for the week.

Nicholas Chia, Asia macrostrategist at Standard Chartered, said there is also the adjacent risk that the last mile of getting inflation back to target may require a sharp increase in the unemployment rate in 2024, which can translate into more support for the dollar.

"Especially if recession fears grow, accompanied by murmurs of more tightening by the Fed."

In rest of Asia, Japan’s Nikkei edged higher and remained close to the 33-year high it touched on Monday. The index is up roughly 28% this year, making it the best performing stock market in Asia.

China’s blue-chip CSI300 Index was 0.58% higher, while Hong Kong’s Hang Seng Index gained 078% as reports of Beijing’s latest stimulus rollout for the property sector lifted risk appetite.

Treasury yields were lower in the wake of solid bidding in the $16-billion sale of 20-year Treasury bonds on Monday that suggested the market still anticipates inflation will decelerate and the Fed will cut rates next year.

The yield on 10-year Treasury notes was down 2.9 basis points to 4.393%, while the yield on the 30-year Treasury bond was down 4.2 basis points to 4.533%.

Lower yields kept the dollar on the back foot, with the dollar index, which measures the U.S. currency against a basket of six major currencies, down 0.135% at 103.31, having touched near three month low of 103.17 earlier in the session.

The Japanese yen strengthened 0.22% to 148.03 per dollar, lifting away from the one-year low of 151.92 it touched last week.

The Australian dollar, often seen as a barometer of risk appetite, touched a three-month high of $0.65775 earlier in the session.

The head of Australia’s central bank said on Tuesday inflation will remain a crucial challenge over the next one to two years, in comments made two weeks after policymakers raised interest rates to a 12-year high earlier to tame high prices.

Oil prices eased, reversing the previous day’s rally. U.S. crude eased 0.46% to $77.47 per barrel and Brent was at $81.94, down 0.46% on the day.