Mumbai, Jan 27 (PTI) The rupee edged higher by 2 paise to settle at 72.92 against the US dollar on Wednesday, ahead of the outcome of the US central bank's meeting.
However, a sharp sell-off in domestic equity markets capped the gains, traders said.
At the interbank forex market, the rupee opened at 72.91 against the American currency and hit an intra-day high of 72.78 and a low of 72.94.
It finally finished at 72.92, higher by 2 paise over its last close.
On Monday, the rupee had ended at 72.94 against the American currency.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, advanced 0.25 per cent to 90.39.
'Indian Rupee appreciated ahead of US Federal Reserve monetary policy meeting. US Federal Reserve is expected to continue with its ultra-loose monetary policy,' said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.
Additionally, market participants are careful ahead of the progress on US stimulus package, Mukadam noted.
Further, the rupee gained strength as hopes of global economic recovery from pandemic got a boost after IMF upgraded its Global Economic Outlook for 2021, he said.
The IMF on Tuesday projected an impressive 11.5 per cent growth rate for India in 2021, making the country the only major economy of the world to register double-digit growth this year amid the coronavirus pandemic.
However, sharp gain in the local unit was prevented due to a plunge in domestic markets, Mukadam noted.
On the domestic equity market front, the BSE Sensex ended 937.66 points or 1.94 per cent lower at 47,409.93, while the broader NSE Nifty declined 271.40 points or 1.91 per cent to 13,967.50.
Foreign institutional investors were net sellers in the capital market as they offloaded shares worth Rs 765.30 crore on a net basis on Monday, according to exchange data.
Forex and equity markets were closed on Tuesday on account of Republic Day.
Brent crude futures, the global oil benchmark, rose 0.61 per cent to USD 56.25 per barrel.
'Rupee continued to appreciate against the US dollar but gains remained limited following sharp sell-off in domestic equities,' said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
In the last few sessions, equities have witnessed profit booking at higher levels and most market participants remain cautious ahead of the important Federal Reserve policy statement, Somaiya said.
'Expectation is that the central bank could maintain a dovish tone and thereby keeping the dollar weighed down against its major crosses. We expect the USD-INR (Spot) to trade sideways with a lower bias and quote in the range of 72.50 and 73.25,' Somaiya noted.
Rupee did not appreciate to a big extent as risky equity markets faced a lot of pressure in recent days which kept rupee appreciation at check near 72.80, said Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities.
'Going ahead 73.00 mark will keep acting at strong hurdle for USDINR pair and 72.60 as supporting aid,' he added. PTI DRR BAL DRR ABM ABM