Dollar bounce stalls as Alabama outcome adds uncertainty

New York (Dec 13)  A two-week rally in the dollar stalled on Wednesday after a Democrat won a bitter fight for a U.S. Senate seat in deeply conservative Alabama, injecting fresh uncertainty about the outlook for the greenback in the coming months.

Even as the U.S. Federal Reserve prepares to raise interest rates for the third time this year at the end of a two-day policy meeting in the day, traders are a bit more sceptical that policymakers will flag more rate hikes next year than the current two increases currently priced into markets.

"Expectations from the U.S. are very limited today in terms of forward guidance despite some likely optimistic assessments about the economic outlook, so the Fed decision may prove to be less supportive for the dollar," said Valentin Marinov, head of G10 currency research at Credit Agricole in London.

The dollar was flat against a trade-weighted basket of currencies at 94.06 on Wednesday after rallying more than 1.5 percent so far this month. Despite the bounce, the dollar is down nearly 8 percent so far this year.

Democrat Doug Jones' win deals a blow to President Donald Trump as the reduced Senate majority could make it harder for him to push through tax cut plans and other economic agenda.

"I am surprised the Alabama outcome is not having a bigger impact on the dollar," said John Marley, head of FX strategy at Infinity International, a currency risk.

Reuters