The U.S. dollar fell hard Wednesday as investors trimmed bets on faster rate hikes from the Federal Reserve, and fresh stimulus from the White House, following a midterm election result which could trigger a spending deadlock between Democratic and Republican lawmakers.

With Democrats projected to take back the House of Representatives, with a 12-seat majority, for the first time since 2010 as Republicans extend their hold on the Senate, the chances of substantial chances to U.S. fiscal plans, as well as President Donald Trump's twin ambitions of a middle class tax cut and $65 billion in spending cuts, have largely disappeared.

This likely eases near-term inflationary pressures on an economy that is already growing at more than 3%, but is also starting to see consumer price increases thanks in part to rising hourly wages, which hit a nine-and-a-half year high last month, and the impact of tariffs on steel, aluminium and $250 worth of China-made goods. 

"While it is tempting to say that this result was already priced in, we do think a divided Congress does have some important implications for the dollar going forward," said ING's global strategy chief Chris Turner. "The vastly reduced chances of fresh US fiscal stimulus will re-emphasise the US as a late-cycle economy heading into 2019 (along with a flat or even inverted curve) and suggests to us the dollar will top out in the 3-6 month window rather than a 6-18 month window, which would have been the case on a fresh tax cut."

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.6% lower in early trading and quoted at 95.75, the lowest in nearly two weeks. Benchmark 10-year U.S. Treasury bond yields, meanwhile, fell more than 2 basis points to 3.18%. 

Spending plans for the fiscal year of 2019, which started in October, have already been agreed by the current Congress, and Trump's insistence on funding for a border wall between the U.S. and Mexico could stall negotiations between the two sides of the aisle as Democrats reject the idea of delivering on a key Republican campaign pledge in the President's final term.

One possible exception to the market's bearish assumption for the dollar could come from an agreement on infrastructure spending, and the long-delayed $1.5 trillion program first mooted by Trump in the early months of his Presidency

However, economists at Goldman Sachs have argued that a Congressional agreement on infrastructure spending "seems unlikely".

"While President Trump and congressional Democrats have both supported infrastructure programs, the details differ substantially and, more importantly, Democrats might not be motivated to reach an agreement with the White House prior to the 2020 presidential election," the bank said in a client note Wednesday.

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