Rupee inches up as risk assets rally, gains capped by weak equities

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad
A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad, India, September 20, 2018. REUTERS/Amit Dave

MUMBAI, Feb 2 (Reuters) - The Indian rupee edged higher on Thursday, as risk assets jumped after the U.S. Federal Reserve meeting, but gains in the local currency were capped as equities remained jittery.

The rupee was at 81.7625 per U.S. dollar by 10:27 a.m. IST, compared to its previous close of 81.92.

The rupee came under pressure this week, as it weakened past the 82-per-dollar levels in the past two sessions. It didn't even manage to sustain post-budget gains on Wednesday, mirroring the volatility in equities owing to an Adani-led selloff.

In local markets on Thursday, a decline in Adani Group shares after the conglomerate shelved a $2.5 billion secondary share sale dominated the mood yet again. Indian equities (.NSEI) were tepid and traders cited worries about more foreign investor outflows.

On the view front, outflows by foreign institutional investors are a negative for the rupee, whereas the weakness in the dollar to a multi-month low is a positive, said Amit Pabari, managing director at CR Forex.

"Broadly, the pair can be seen trading in a wide range of 81.50 to 81.90. Either side breakout will result in a 20-40 paisa move."

Foreign institutional investors withdrew around $3.5 billion from stock markets in January alone.

Meanwhile, Asian currencies and stocks were buoyed by Fed Chair Jerome Powell acknowledging that U.S. inflation had started to cool after the central bank raised rates by an expected 25 basis points.

However, he did signal that interest rates would rise further and that cuts were not in the offing, but markets continued to cheer the likelihood of the Fed rate peaking soon, with the dollar index plunging more than 1% overnight.

Reporting by Anushka Trivedi; Editing by Janane Venkatraman

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