By Sethuraman N R
MUMBAI (Reuters) – The Indian rupee ended lower on Tuesday as investors squared off their short dollar positions ahead of key rate decisions by the U.S. Federal Reserve and European Central Bank later this week.
The rupee, which resumed trading following an extended weekend, closed at 81.88 per U.S. dollar against its previous close of 81.8250.
The market expects the ECB to tweak its hawkish guidance, while the Fed has very limited room to deviate from its conventional monetary policy stance, said Arnob Biswas, FX research analyst at SMC Global Securities.
The ECB’s decision could be a trigger for the dollar to rebound quickly. Markets are positioning themselves before the meetings and squaring off their short dollar positions to either stay neutral or take an aggressive call on the long dollar side, Biswas said.
Public sector banks buying dollars, possibly for the Reserve Bank of India, as inflows rose, was another reason for short dollar positions getting covered, traders said.
Foreign investors bought over $800 million of Indian equities in the last two sessions, according to data from the exchange.
The S&P BSE Sensex closed at its highest level since December 20, 2022, on Tuesday.
The two-day Fed meeting will take place later in the day, following which the central bank is expected to raise rates by 25 basis points.
“Feds can, however, always catch you off guard. A dovish shift without rate increases or dovish discourse notwithstanding a rate increase can cause the US dollar to fall,” Kotak Securities said in a note.
(Reporting by Nallur Sethuraman and Nimesh Vora in Mumbai; Editing by Sonia Cheema)
