Mumbai: The rupee strengthened on Wednesday as custodian banks sold dollars on behalf of foreign funds investing in bonds and stocks, but traders said volume was light ahead of the central bank’s policy on Thursday.
At 11:16 am, the partially convertible rupee was at 44.68/69 per dollar, slightly firmer than last close of 44.73/74.
Traders said weakness in Asian peers, the euro and local shares could push the rupee towards 44.80 later in the day.
“There is uncertainty in the euro zone and global equity markets are also not showing a clear direction as decision on QE2 draws closer,” said a foreign exchange dealer at a large engineering conglomerate.
The Federal Reserve is expected to decide soon on the need for another round of extraordinary support for the US economy as the current program known as QE2 should be completed by end of June.
The euro came under fresh pressure in Asia on Wednesday as worry about euro zone debt intensified after EU ministers failed to seal a deal on Greece, prompting a move away from riskier assets which helped gold extend gains.
The euro was at $1.4412 and the index of the dollar against six major currencies was up 0.27% at 74.529 points.
The benchmark share index was trading down 0.2%, tailing weak Asian markets and expectations for another rate increase by the central bank on Thursday.
The Reserve Bank of India (RBI) is expected to raise its policy interest rate by a total of 75 basis points for the rest of 2011, including a 25 basis point increase on Thursday, unchanged from forecasts on 3 May, a Reuters poll found on Tuesday.
The one-month onshore forward premium was at 25.75 points versus 26.25 at last close.
The three-month was at 78.75 points from 76.25 and the one-year was at 272.75 points versus 269.50.
One-month offshore non-deliverable forward contracts were quoted at 44.89, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange were all at 44.785, with total volume at $2.26 billion.