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The Indian rupee rose against the US dollar while sovereign bonds rallied as global risk sentiment improved by US Federal Reserve Chair Jerome Powell's comments that were less hawkish than expected. The rupee finished higher at 81.22 per dollar, compared to its previous close of 81.42. At day's high, rupee rose to two-week highs of 80.99 before paring some gains. 

"Rupee traded strong in first half with gap up opening on back of positive comments from Fed chair Powell on interest rates hikes to be lowered, but eventually rupee took resistance at 81.00 mark as the comments had dark spots in it which read interest rates will be way higher than current rate as inflation is stubbornly high. Rupee gave up on its gains after cheering till 81.00 as Dollar index too found support near $105.25. Going ahead 81.00 will act as strong resistance for rupee; any breach above 81.00 rupee will see a sharp rally towards previous resistance of 80.00," said Jateen Trivedi, VP Research Analyst at LKP Securities.

Indian government bond yields fell sharply to end at at its lowest level in eleven weeks. The benchmark 10-year yield ended at 7.2095% - after its biggest single-session fall in two months - as compared to previous close of 7.2798% on Wednesday. 

Fed Chair Powell in his speech gave a clear indication that the US central bank would slow down its pace of rate increases and hike rates by 50bps in the December policy. He said that as the Fed has already raised rates rapidly and it takes time for those to move the economy, it would make sense for officials to slow rate increases. Powell said that the Fed was entering a new phase of policy tightening where it would judge how high the rates should be. He also said he did not want to overtighten because cutting rates was something the Fed did not want to do soon. Overall the speech can be said to be leaning towards moderation in hawkishness going forward and this has brought a great sense of comfort to markets," IFA Global said in a note. 

Fed Chair Powell however warned that the fight against inflation was far from over. US. Treasury prices rose after the comments, with the yield on the 10-year note declining to 3.60%, its lowest in nearly two months. The dollar index fell sharply to 104.912. 

A relatively less hawkish Fed could also release the pressure from the Reserve Bank of India to hike rates. The RBI's Monetary Policy Committee (MPC) next policy announcement is due December 7. 

Domestic brokerage JM Financial expects RBI to hike policy rates by 35 bps in December but said it’s too early to make any change in its policy stance. (With Agency Inputs)

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