Mumbai: The rupee on Wednesday strengthened by 18 paise, breaking its two-day losing string, to close at 55.47 against the US dollar on robust capital inflows in the stock market and exporters selling the American currency ahead of the outcome of a key US Federal Reserve meet.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced lower at 55.75, which was also to be the day's low.
Amid FIIs pumping in over Rs 441 crore in stocks, the rupee later bounced back to a high of 55.43 before concluding at 55.47, a rise of 18 paise or 0.32 percent. In the previous two days, rupee lost over 30 paise against the dollar.
Forex traders said exporters sold dollars on hopes of a further fall in dollar value overseas as market participants awaited the conclusion of the US Federal Reserve's two-day policy meeting later in the day.
The dollar index was down by 0.1 percent against a basket of six major currencies. Any quantitative easing measure is likely to put the dollar under stress, said analysts.
The dollar's main rival euro also held steady ahead of Thursday meeting at the European Central Bank where it is expected to set monthly interest rates.
"Today's rupee movement was due to custodial flow of dollars from foreign banks. Good show in stocks also supported the domestic currency," said N S Venkatesh, Head of Treasury, IDBI Bank.
The Indian stock market benchmark Sensex on Wednesday extended its gains for the fourth straight session and closed up by over 21 points.
On Tuesday, the RBI had announced that corporates and exporters will be allowed to fully retain foreign exchange earnings as against the earlier provision that 50 percent of exporters’ earnings in foreign currency had to be converted into rupee.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The rupee traded on a range bound move with a strengthening bias for most of the session being in a couch potato situation. The hopes of liquidity from the Fed and the ECB have been supporting the rupee but a bleak economic due to the stagflation concerns infused by RBI capped the gaining momentum."
The market seems to be keenly waiting for the FED policy announcement which is due for the later part of the day, said experts.
"We expect no major announcement on stimulus to be made. We can expect dollar to rebound after the event. We target rupee to 56 levels in next few days," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
The premium for the forward dollar remained firm on sustained paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in January ended higher at 185-187 paise from previous close of 183-185 paise.
The premium for far-forward contracts maturing in July also settled up at 331-333 paise from 326-328 paise.
The RBI fixed the reference rate for the US dollar at 55.8070 and for euro at 68.4520.
The rupee improved further against the pound sterling to end at 86.70 from last close of 87.18 while recovered slightly against the euro to 68.26 from 68.31.
It also rebounded against the Japanese yen to 70.99 per 100 yen from Tuesday's close of 71.21.
First Published: Wednesday, August 01, 2012, 21:12