The currency climbed to a peak of 88.4250 in early trading but lost much of its gains in the second half of the session. A trader at a private bank cited demand for dollars from importers and modest portfolio outflows as major factors contributing to the pressure.
Offshore market participants, meanwhile, have opted to use options to position themselves for a potential rally in the Indian rupee, encouraged by Wall Street banks promoting strategies based on the prospect of a US-India trade deal.
Both New Delhi and Washington have indicated that an agreement is close. Analysts believe a breakthrough in negotiations could lead to a recovery in the rupee and boost inflows into local equities.
A dip in most Asian currencies also weighed on the local unit on Wednesday. The dollar swung between gains and losses against major peers as investors waited for key U.S. economic data and commentary from Federal Reserve officials to assess U.S. monetary policy. Analysts at MUFG said in a note that the dollar’s sensitivity to intraday moves in U.S. stock markets has increased, which could magnify the impact of chip titan Nvidia’s quarterly earnings, due later in the day.
“Given the current positive correlation between stocks and the dollar (perhaps reflecting renewed concerns about a tech/AI-specific correction hitting the broader US economy), a bad earnings report tonight could make the dollar weaker,” the company said.
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