By Nimesh Vora
MUMBAI (Reuters) - The Indian rupee closed at its lowest level ever against the U.S. currency on Wednesday, tracking the dollar index's strength as the U.S. Federal Reserve gears up for a hefty rate hike to tame inflation pressures.
The rupee closed at 79.9750 per U.S. dollar, down from 79.75 in the previous session. The rupee opened a tad lower at 79.79 and continued to toil lower through the session.
The mobilisation of troops by Russian President Vladimir Putin piled on more pressure on the rupee, already weighed by the surging dollar index.
The dollar index climbed to a two-decade high of 110.87. Weak risk appetite and the Fed's interest rate outlook boosted demand for the greenback.
The Fed later is expected to raise rates by 75 basis points in the day, the third straight hike of this size. There is a small possibility that the Fed could opt for a 100 basis points hike.
In addition to the rate decision, investors will be eyeing Fed Chair Jerome Powell's press conference and policymakers' new projections on the likely path of interest rates.
"Look for Fed Chair Jerome Powell to reinforce the message that the battle against inflation is far from won," DBS Group Research said in a note.
The research house pointed out that, encouragingly for the rupee, it has consistently been in the middle-to-upper quotient of the Asian forex pack on year-to-date performance, outdoing many regional peers.
"Shifts in global risk sentiments, the upcoming Fed rate decision and rising U.S. real yields are under watch," it said.
In the lead up to the decision, traders have raised their expectations for the peak in Fed rates, given the upward surprise in U.S. inflation data. From near 4% at the end of August, the terminal rate forecast has now reached near 4.50%.
Indian shares dropped on Wednesday but, yet again, the losses were moderate relative to other Asian gauges.
(Reporting by Nimesh Vora; Editing by Savio D'Souza)