By Sam Forgione
NEW YORK (Reuters) - The U.S. dollar fell against a basket of major currencies on Wednesday after touching a nearly nine-month high on Tuesday as the greenback looked vulnerable to weakness on uncertainty surrounding Federal Reserve monetary policy and the U.S. election.
Analysts said expectations that the Fed would raise interest rates this December were fully reflected in the dollar's recent rally, putting the currency at risk of losses if any contrary signals from Fed officials crop up between now and the end of the year.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.23 percent at 98.494 after touching 99.119 on Tuesday, its highest since Feb. 1. The index has risen about 3.2 percent this month, putting it on track for its best month in nearly a year.
"The dollar is vulnerable to downside," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York. "What’s priced into it is a Fed rate rise in December, a Clinton victory, and neither of these is 100 percent guaranteed."
He said a potential surprise victory for U.S. Republican presidential candidate Donald Trump would hurt the dollar.
Traders saw a 74 percent chance that the Fed would hike rates in December on Wednesday, down from a more than 78 percent chance on Tuesday, according to CME Group's FedWatch program.
The euro <EUR=> was last up 0.32 percent against the dollar at $1.0921 after touching a six-day high of $1.0945 earlier in U.S. trading. That marked a rebound from a 7-1/2-month low of $1.0848 touched on Tuesday.
The dollar was up 0.14 percent against the yen at 104.36 yen <JPY=>, but down from a roughly three-month high of 104.87 yen touched on Tuesday. The dollar was down 0.18 percent against the Swiss franc
In addition to Fed and U.S. election uncertainty, recent stronger German business morale and import prices data may have led traders to trim short bets against the euro, said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
"The weak euro zone economy is showing a little more life," Franulovich said.
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