Rupee tad weaker as dollar gains on Fed rate reassessment

The Indian rupee weakened against the U.S. currency on Monday, as the dollar index recovered some ground, tracking a rise in Treasury yields following mixed U.S. data.

The rupee finished at 81.9725 per dollar, compared to its previous close of 81.85. The currency moved in a narrow 10 paisa range through the session.

USD/INR forward premiums fell, with the 1-year yield down to a one-month low of 2.30%.

On Monday, the dollar index jumped to 101.840 after hitting a one-year low last week, while the 2-year U.S. bond yield traded above 4%. Asian currencies fell across the board, with the South Korean won leading losses.

Resilience in U.S. core retail sales and a jump in inflation expectations have led investors to trim the amount of easing expected from the Fed later this year to around 55 basis points (bps).

"Further, hawkish comments from a Federal Reserve official increased bets of another rate hike," ICICI Securities analysts said in a note, referring to Fed Governor Christopher Waller's remark that U.S. central bankers "haven't made much progress" in returning inflation to their 2% target.

Expectations of an additional 25 bps hike at the Federal Reserve's May 2-3 meeting jumped to 88%, futures showed.

The rupee could weaken towards 82.10 if it remains above the key resistance level of 81.85, ICICI analysts said.

With marginal gains last week, the currency has risen for four straight weeks as foreign investors turn net buyers of Indian equities this month.

However, market participants said they think the Reserve Bank of India was likely present over the past few days to mop up dollar inflows, which has kept the rupee from appreciating further.

Data on Friday showed India's foreign exchange reserves for week ended April 7 hit a nine-month high of $584.76 billion.