The dollar pares gains after steep rally on contested result concerns. But strategists now see more greenback strength ahead

• Dollar index pares gains following biggest one-day rise since mid-August, now trading around -0.21%
• Deutsche Bank's global co-head of currency strategy George Saravelos updated his dollar forecast to neutral, saying that his team no longer a compelling narrative for dollar weakness into the year-end.

The dollar gave back some gains on Wednesday, as investors cashed in on a steep rally earlier in the day that was driven by the sudden prospect of a contested US election, after Donald Trump prematurely declared victory, even though a number of key states remain up for grabs.

After having gained ground against everything from the euro and the yen, to the Mexican peso and the Chinese yuan, the US currency slipped, leaving the dollar index trading around -0.21%.

Most G10 currencies looked to have recovered from their lows earlier in the day, with the euro reversing a 0.4% decline to gain as much as almost 0.3%. It is now trading at 1.1710, down 0.04% on Tuesday's close.

"It's a rollercoaster, (I) can't make a directional view," Credit Agricole strategist Manuel Oliveri said, arguing that USD had gained on Trump's "surprising" positivity.

Trump, speaking at a press conference in the very early hours of Wednesday morning, said he would ask the highest court in the country to stop the vote counting. Earlier in the day, he falsely claimed in a tweet the Democrats were stealing the election, prompting Twitter to flag the post.

"We are going to win this and, as far as I'm concerned, we already have," Trump told supporters, despite the count so far showing a narrow lead for Democrat opponent Joe Biden.

However, the dollar's retreat was only temporary, especially as Biden had not managed the 'blue sweep' that many had anticipated would grant his party control of the White House and both chambers of Congress, according to Rabobank currency strategist Jane Foley.

"Without a Blue Wave, the chances of a quick and large fiscal stimulus package have been sapped, with the House and the Senate likely to continue bickering. Additionally, right now, it seems that when it comes, the election result could be contested. Both these factors are likely to weigh on risk appetite and support the dollar," she said.

Deutsche Bank global co-head of currency strategy George Saravelos updated his dollar forecast today, moving to a neutral position and saying that his team "no longer see a compelling narrative of dollar weakness into year-end," according to a research note.

One factor in the decision was that a "Blue Wave" hasn't happened, meaning the expected easy fiscal stimulus under a fully Democrat administration is likely to go ahead. This would, in turn, likely depress US borrowing rates even further and undermine the dollar's competitive advantage against other higher-yielding currencies.