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The Indian rupee dropped on Wednesday on the back of weakness in most Asian peers after US inflation data topped expectations, but most market participants said the decline was likely a blip.
The rupee was at 82.86 to the US dollar (22.58 against UAE dirham) at 9am, UAE time, compared with 82.7675 (22.55 to dirham) in the previous session.
Asian currencies were mostly down following an uptick in US Treasury yields after sticky inflation suggested that the Federal Reserve will wait longer to cut interest rates.
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An anticipated outflow of $2 billion added more pressure on the domestic currency.
The rupee had reached a six-month high of 82.64 on Monday. Market participants expect the currency to resume its uptrend and climb back to that level and possibly higher.
"We believe that after a slight spike (on USD/INR), perhaps towards 82.90, we may see a resumption of the downward trend towards 82.50 levels," said Amit Pabari, managing director at forex advisory firm CR Forex.
Anindya Banerjee, head research for FX and interest rates at Kotak Securities, said persistent inflow of foreign portfolio investments and repatriation inflows that occur in March might mitigate the impact of any potential outflow. He expects a range of 82.60-82.90 in the near term.
A foreign exchange trader at a bank said the rupee's decline "today is likely to cause only a bit of stress to short (USD/INR) positions".
US core consumer prices increased more-than-expected in February, indicating price pressures were proving sticky, leading to a rise in U.S. Treasury yields and the dollar index on Tuesday. (With inputs from Reuters)
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