The rupee rose to a near two-month high of 86.2075 per U.S. dollar earlier in the day before closing at 86.3675, up 0.1% on the day.
Banks selling dollars to lock in profits on arbitrage trades between the non-deliverable and outright forwards also aided the rupee.
A broadly weaker dollar has prompted a paring of short bets against Asian currencies with shorts on the Chinese yuan, a closely tracked peer of the rupee, falling to an over one-year low, according to Reuters poll.
The yuan and the rupee have strengthened 0.7% and 1.3% over March, respectively.
On the day, though, the dollar index rose to 103.9 lifted by a drop in the euro and after the Federal Reserve signalled on Wednesday that it was in no rush to cut interest rates again while projecting that two quarter-point interest rate cuts were likely later this year, the same forecast as December. While Fed policymakers made no changes to their interest rate outlook, they expect slower economic growth and higher inflation as they navigate a multitude of policy changes by President Donald Trump. “The Fed is still signalling that it has a dovish bias to lower rates further despite the higher inflation forecasts for this year suggesting it is willing to look through a short-term pick-up in inflation,” MUFG Bank said in a note.
Interest rate futures are currently pricing in about 65 basis points of U.S. rate cuts over the remainder of 2025.
