Rupee falls as US inflation jitters dent Fed rate cut bets, hoist dollar
The rupee closed at 85.94 per U.S. dollar, down 0.1% from its close at 85.81 in the previous session.
The dollar index was at 98.5, hovering close to a three-week high hit on Tuesday, while Asian currencies were flat-to-slightly lower.
U.S. consumer prices rose by the most in five months in June, with higher prices for some goods suggesting that tariffs have started to bite.
The odds of the Fed keeping rates unchanged in September have risen to nearly one-in-two, up from around 30% last week, per the CME's FedWatch tool.
The shift comes at a time when U.S. President Donald Trump has repeatedly criticised Fed Chair Jerome Powell for not lowering benchmark rates.
"Building evidence of the pick-up in inflation from tariffs supports the Fed's caution over resuming rates cuts in the near-term despite the barrage of criticism from the Trump administration," MUFG said in a note.
A broadly firmer dollar pushed the rupee below the 86 mark in early trading on Wednesday, but the local currency recovered due to "clustered" dollar selling interest around that level, a trader at a state-run bank said.
Traders also pointed to dollar sales by large custodian banks, which usually signals foreign portfolio inflows, among the factors supporting the rupee.
India's benchmark equity indexes, the BSE Sensex (.BSESN), opens new tab and Nifty 50 (.NSEI), opens new tab, closed a tad higher, dodging a decline in most regional peers.
Market focus will be on U.S. wholesale inflation data later in the day alongside remarks from Fed policymakers for cues on the trajectory of benchmark U.S. interest rates.
Developments on U.S. trade negotiations will also be on the radar, although market reactions have become much more subdued compared to earlier in the year.
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