The US dollar surged to fresh one-year high after the Fed chief's testimony to the US Senate on Wednesday bolstered the expectations of interest rate hikes, though gradually.
The gains will provide a much-needed reprieve after the rupee fell for a fifth week and hit an over two-month low last week in trade.
Frantic dollar demand from corporates along with an aggressive hedging strategy adopted by importers in the wake of the currency volatility predominately took a toll on the domestic unit despite moves by the central bank to stabilise the currency.
Global currency market sentiment is likely to be driven by the US deficit and debt ceiling negotiations, with markets likely to turn more risk averse closer to October 17, the date by which the US Congress must approve raising the country's borrowing limit.
Market breadth turned negative with 1,779 declines over 884 advances on the BSE
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The Reserve Bank of India late on Wednesday unveiled rules to restrict how much its citizens and companies can invest abroad and announced additional curbs on gold imports.
During the first US presidential debate, moderator Chris Wallace asked Trump about The New York Times report which revealed that Trump paid $750 in federal income taxes in 2016 and 2017 and also he had paid no income taxes at all in 10 of the previous 15 years starting in 2000.
Dealers attributed the rupee's fall to increased demand for the US currency from importers.
Extending its losing streak for the fourth straight day, the rupee weakened by five paise to 61.01 against the US dollar in early trade today at the Interbank Foreign Exchange market on high demand for the American currency from importers.
Overall forex market sentiment remained cautious
Fresh dollar demand from banks and importers amidst volatile equities triggered the fall
India builds up record FX after Fed hints rate hike in future.
The US House of Representatives averted a government shutdown on Thursday, narrowly passing a $1.1 trillion spending bill despite strenuous Democratic objections to controversial financial provisions.
Silver followed suit and traded higher by Rs 200 at Rs 34,200/kg.
The domestic unit moved in a range of 64.14 and 63.99.
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Forex dealers said apart from month-end demand for the American currency from importers, dollar's gains against other currencies overseas amid US data showing more-than-expected economic growth in the second quarter also put pressure on the local unit.
The rupee had dropped by 60 paise or 0.89 per cent in previous three trading days.
At lower levels, a supportive buying in dollar forced rupee to depreciate since opening trade
Sluggish domestic equities and persistent capital outflows largely pressurised the Indian unit
Lower dollar in the overseas market also boosted the rupee value
The rupee ended marginally higher by two paise at 62.24 against the dollar on Wednesday.
The dollar moved higher, while prices for US government debt fell, as traders ramped up bets the Federal Reserve would raise interest rates in March
Fed is still concerned about weak export growth.
Jewellery stores remained deserted as buyers deferred their non-essential purchases awaiting softness in gold prices.
The RBI is expected to cut rates in next policy.
In addition to declaring a national emergency, US President Trump has approved major disaster declarations for New York, California, Washington, Iowa, Louisiana, North Carolina, Texas and Florida.
The RBI fixed the reference rate for the dollar at 64.1505 and for the euro at 72.2720.
Unwinding of long dollar positions ahead of the US job data backed the rupee sentiment
'The temptation of governments, to have a finger in the RBI pie will be just too great to resist, unless extensive amendments are carried out in the RBI Act treating it almost as the fourth branch of the government.'
Most expect these bubbles to break in short order and cause serious financial pain to anyone who's foolhardy enough to remain invested in financial assets.
Janet Yellen is guiding the Federal Reserve towards its first rate rise in a decade armed with traditional economic models that some economists worry could fail her in a world of massive money printing and near zero rates.
The rupee showed range-bound movement on Wednesday as investors preferred to stay cautious in the unsure market.
The rupee continued to slide against the pound sterling and finished at 102.64 as against 102.25 previously.
The policy statement by the RBI governor is also expected to be upbeat.
India was less directly affected by the Chinese stock market rout and yuan devaluation that battered currencies and markets in the region.
The rupee recovered by 11 paise to trade at 60.84 against the US dollar in early trade today on selling of the American currency by banks and exporters.
The rupee had slumped to its all-time closing low of 68.80 a dollar on August 28, 2013.
The government needs to take positive action to reaffirm that story.
US gold futures slid over 1 per cent on Thursday, while silver futures dropped 2 per cent.
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