Rupee declines but ends off day's low, premiums fall

A customer hands Indian currency notes to an attendant at a fuel station in Mumbai

MUMBAI (Reuters) - The Indian rupee declined against the dollar on Wednesday amid worries over the U.S. interest rate outlook, but the losses were contained by exporters and speculators.

The rupee closed at 82.0550 to the U.S. dollar, down from 81.91 in the previous session. The local currency had fallen to an intraday low of 82.29.

The 50-day and 100-day USD/INR moving average is around the 82.25 level.

The dollar offers in the "cluster" of 82.20-82.30 ensured that the opening upside momentum (on USD/INR) "subsided", a spot trader at a private sector bank said. The "best guess" for the offers will forward dollar sales by exporters and new positions, he said.

In line with past rallies in the dollar, the rupee's losses were lesser than its Asian peers, traders pointed out.

The Korean won and Malaysian ringgit declined more than 1% each, while the Indonesian rupiah dropped 0.6%, following hawkish comments by U.S. Federal Reserve Chair Jerome Powell.

Powell opened the door to a 50 basis points hike by telling U.S. lawmakers that in the wake of recent economic data, the speed and size of future hikes may need to increase.

His comments also drove the dollar to scale multi-month highs against most other major currencies, with the dollar index rising to a 3-month high of 105.88.

Futures now reckon that it is more likely that the Fed will revert to a 50 bps rate hike at this month's meeting, an outcome that looked highly unlikely about a month back.

"Whether the FOMC hikes by 25bp or 50bp, we expect that the median dot will rise by 50bp at the March meeting to show a peak rate of 5.5-5.75% in 2023," Goldman Sachs said in a note.

The bank raised its forecast of the peak rate by 25 bps to 5.5-5.75%.

The rupee forward premiums fell, tracking an overnight jump in U.S. yields. The 1-year implied yield fell 6 bps to 2.12%.

(Reporting by Nimesh Vora)