The rupee rose on Thursday as the dollar retreated after the Federal Reserve's latest meeting minutes showed that most US policymakers were convinced they could now move in smaller steps.
Bloomberg showed the rupee was last changing hands at 81.70 per dollar, up 15 paise from its previous close of 81.8513 on Wednesday.
According to PTI, the domestic currency gained 21 paise to 81.72 against the US dollar in early trade.
"The minutes confirmed that Fed Chair Jerome Powell and his army Thanked and said Good Bye to the 'aggressive or Jumbo' rate hike in Nov 2 meeting," said Amit Pabari, Managing Director of CR Forex Advisors.
"Along with less hawkish minutes, a fall in US manufacturing and services PMIs led to a retreat on DXY, a slight pop-up on US equity markets...Broadly, along with the ‘Thanksgiving day' sale, it is a sale in US dollar too and risk-on sentiment-based asset, i.e. equity market turned expensive," he added.
Broadly, the US dollar was weaker as investors made bets on riskier assets driven by encouraging signs the Federal Reserve will slow the pace of future rate hikes.
"The relevant sentence in the minutes of the Fed's November 1-2 meeting, as far as financial markets need to be concerned, is this, 'a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate'," noted Robert Carnell, Regional Head of Research for Asia-Pacific at ING.
After falling 1 per cent overnight, the dollar index, which measures the performance of the greenback versus a basket of its major peers, was down further on Thursday in Asian hours.
"I think now it is almost certain that we'll see the FOMC slow its pace of tightening from December," Carol Kong, a Currency Strategist at the Commonwealth Bank of Australia (CBA), told Reuters.
The minutes also revealed a growing discussion within the Fed regarding the dangers that abrupt policy tightening would bring to financial stability and economic growth. Policymakers also admitted that rates still needed to climb and that there had yet to be much visible progress on inflation.
Mr Kong of CBA, however, warned that the markets were overly excited about a potential impending halt to the tightening cycle and pointed out that the zero-COVID policies of China continued to provide significant support for the US currency.