The Indian rupee strengthened to an over three-week high against the U.S. currency on Wednesday, as traders said foreign banks were selling dollars amid improved risk appetite in the market.

The rupee finished up 0.41% to 82.00 per dollar, having firmed to its highest since March 13 at 81.92, in a session where the Nifty 50 (.NSEI) and S&P BSE Sensex (.BSESN) rose around 1% each.

Foreign banks sold dollars, likely on behalf of their custodial clients, while stop losses were triggered once 82.08 was breached, traders said.

USD/INR has faced rejection at that level on a couple of occasions in recent days, which some traders thought the Reserve Bank of India (RBI) had been buying dollars at.

The inflows on Wednesday could also be related to a corporate fundraising, two dealers said.

The dollar index remained subdued after declining 1% over the past two sessions, as weak U.S. job openings and manufacturing data stoked hopes the U.S. Federal Reserve would tone down its aggressive monetary policy stance.

Near-maturity 2-year Treasury yield dropped 14 basis points (bps) overnight, as markets priced 75 bps worth of Fed cuts in the second-half of the year.

“With bond markets pricing an end to rate hikes soon from major central banks, a new cycle in risk assets may not be far away,” said Anindya Banerjee, head of research – FX and interest rates at Kotak Securities.

Odds of a pause or a 25 bps hike at the Fed’s May meeting had gone back to being almost even, after leaning marginally towards an increase earlier this week.

Meanwhile, the RBI’s monetary policy decision is due Thursday, where a 25 bps hike is expected, with a focus on the central bank’s commentary and guidance.

Investors will also await crucial U.S. non-farm payrolls report, due on Friday, and inflation data next week.


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