By Nimesh Vora
MUMBAI (Reuters) - The Indian rupee weakened slightly against the U.S. currency on Wednesday on dollar demand from importers, though volumes were thin ahead of a key Federal Reserve monetary policy review.
The rupee last traded at 82.7900 per dollar, compared with 82.6950 in the previous session. The local unit traded in an 82.63-82.80 range on lower-than-usual volumes.
"Like yesterday, there was not much to talk of. There was bit of the normal importer dollar demand, while speculators were largely absent," a trader at a private sector bank said.
Anil Bhansali, head treasury at Finrex Treasury Advisors, said that interbank was preparing for the volatility that is likely to follow the Fed decision.
Depending on whether the Fed is perceived dovish or hawkish relative to expectations, the rupee could see a move to 82 or drop well below 83 at the open on Thursday, Bhansali said.
The Fed is tipped to raise rates by 75 basis points later in the day and expectations are that the Fed Chair Jerome Powell will signal that policymakers may opt for a smaller 50-bps rate increase at its December policy meeting.
If the Fed's expected pivot does not materialize, it could fuel a rally in the dollar and lift Treasury yields, according to traders. That could put rupee and its Asian peers under pressure at open on Thursday.
The shifts in the probability of a 50-bps-December hike will be key across the rates and foreign exchange markets. Currently, the odds of a 50-bps and 75-bps hike in December are almost the same, according to the CME FedWatch Tool.
Rupee forward premiums inched lower ahead of the Fed and Indian equities fell. The dollar index slipped and the 2-year Treasury yield was hovering just above 4.50%.
(Reporting by Nimesh Vora; Editing by Savio D'Souza)