The U.S. dollar weakened Wednesday after the Federal Reserve hiked interest rates by 0.25 percent in a widely expected move, but left its rate outlook for the coming years unchanged.

Officials acknowledged in their latest forecasts that the economy had gained steam in 2017 by raising their economic growth forecasts and lowering the expected unemployment rate for the coming years.

The Fed reinforced it would stand by outgoing Chair Janet Yellen's policy of gradually raising interest rates, as economic conditions demand. Projections point to three rate hikes in 2018 and 2019 before a long-run level of 2.8 percent is reached. That is unchanged from the last round of forecasts in September.

"The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the Federal Reserve wrote in a statement.

Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari dissented against the rate hike decision, according to the Fed's policy statement on Wednesday.

"Although widely expected, some policymakers have expressed concerns at today's rate hike at a time when wage growth remains stagnant and inflation is only crawling northwards," Dennis De Jong, managing director of UFX.com said.

Outgoing Federal Reserve Chair Janet Yellen later addressed the decision and how the Trump administration's tax overhaul could affect the U.S. economy.

"We did discuss tax policy and let me say that most of my colleagues factored in the prospect of fiscal stimulus along the lines of what is being contemplated by Congress into their projections," Yellen said.

"Changes in the projections you have seen since September should not be viewed as an estimate of the impact of the tax package. In particular, broader expectations of fiscal policy have been reflected in financial market conditions over the past year," she added.

President Donald Trump's legislative agenda may be harder to push through, however, following Tuesday's victory by Democrat Doug Jones in the bitter fight for a U.S. Senate seat in deeply conservative Alabama.

The dollar index dropped 0.65 percent to 93.48, the lowest level it's seen since hitting Dec. 7.

The euro last climbed 0.64 percent at 1.1815 against the dollar.

Early in the day, the dollar weakened after consumer price data showed sluggish inflation, adding to concerns the Federal Reserve will be less able to execute multiple rate increases next year.

Excluding the volatile food and energy components, consumer prices ticked up 0.1 percent in November, with the annual increase in the core CPI slowing to 1.7 percent in November from 1.8 percent in October.

"The focus is on the core measure of inflation, that came in weaker than the market expected," said Vassili Serebriakov, a foreign exchange strategist at Credit Agricole in New York.

Chloe Aiello and contributed to this report.