The rupee held steady on Friday even as the dollar was heading for its largest weekly gain in a month after Federal Reserve policymakers reaffirmed their aggressive rate hikes stance.
Bloomberg showed the rupee was last changing hands at 81.6875 per dollar, compared to its previous close of 81.6475.
"Most Asian currencies have been stable since morning and the dollar index consolidated at 106.60 levels. The rupee remained on a weaker side for most part of the day, trading in a range of 81.52 to 81.78," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
PTI reported that the rupee slipped 6 paise to close provisionally at 81.70 against the US dollar.
There is persistent demand for dollars from oil importers and other corporates, according to foreign exchange traders
"Any dips in USD/INR are being bought out this week," Ritesh Agarwal, Head of Treasury at CTBC Bank told Reuters.
When the pair fell near 80.5 on Monday, it became extremely attractive for importers to start covering after having been in a loss-making position for a while, said Mr Agarwal.
He expects the rupee to weaken to 82 as soon as next week. The rupee last traded in the 80-handle in mid-September.
While the greenback was steady on Friday, it is up around 0.4 per cent so far this week, paring some of last week's 4 per cent drop after lower-than-expected US inflation reading triggered one of the currency's sharpest weekly drops in decades.
James Bullard, President of the St. Louis Fed, was the most recent US central bank official to reject market expectations for a easing in interest rate hikes, stating that even under dovish assumptions, the funds rate would need to increase from its current level of 3.75–4 per cent to at least 5–5.25 per cent in order to reduce inflation.
He suggested that more pessimistic predictions would advise it to rise above 7 per cent.
But money markets show that investors now anticipated a 5 per cent peak in US interest rates by the middle of next year.
"We think this consolidation phase in the dollar may extend for a little longer, before a re-appreciation of the greenback into the end of the year. Indeed, markets will remain highly sensitive to Fed speakers," ING's Strategist Francesco Pesole told Reuters.
"So far, post-CPI comments have indicated some lingering caution on the inflation battle as most Fed members tried to curb the market's enthusiasm about an imminent dovish pivot. The future market has now fully priced back in a 5.00 per cent peak rate in the first half of 2023," he added.