The rupee gained on the dollar on Tuesday, driven by a broader risk-assets rally after a dramatic U-turn in British fiscal policy brightened investor sentiment.
According to Bloomberg, the rupee was last changing hands at 82.2088 per dollar, compared to Monday's close of 82.3550.
PTI reported that the rupee rose 22 paise to 82.08 against the US dollar in early trade.
"Reversal of tax cuts by UK Finance Secretary took the dollar index lower as risk-on sentiments continued for a second straight day," Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
"The rupee to remain in a range of 82.00 to 82.50 (per dollar) as the Reserve Bank of India sits on 82.40 selling dollars and not allowing a move beyond this level since the rupee's record low of 82.68," he added.
The rupee rose from 82.35 in the previous session, when it traded in a roughly six-paisa range, similar to the pattern of steady trading seen over the past week as the RBI defended the currency from sharp decline after it plunged to all-time lows repeatedly.
But analysts warn the rupee could be in for a rough ride ahead.
"Despite global markets being on a turbulent ride, witnessing the calmness and containment in the rupee for the past couple of sessions amid RBI's intervention, one awaiting a stronger rupee might urge to think; is it a reversal in the rupee and bet otherwise?" Amit Pabari, Managing Director of CR Forex Advisors said.
"The one who presumes that RBI is having our back and eases up shall recall the past episodes when the rupee moved from 80 to 78.50 in 3 sessions and jumped back above 82 to make a new high after a brief consolidation. After a storm comes a calm, and prolonged calmness is an indication of an upcoming storm," he said.
"We reiterate, until the global turmoil eases out and the trend changes across, pressure on the rupee will remain bound though in lag, and the pair are set to move towards 83.00-83.50 levels in a couple of days," added Mr Pabari.
Indeed, beyond the recent trading session, the rupee has collapsed dramatically - reflected in the 52-week range of 73.7787 to 82.6950 per dollar, down nearly 10.8 per cent for the year, suggesting more downside likely in the near term.
"We reckon that after the opening dip (on USD/INR), we will probably have another quiet session, like yesterday, or the dollar drifts higher back to the 82.40 level," a trader at a Mumbai-based bank told Reuters.
The dealer added that the chances of the rupee adding to its opening advance "are quite low," given the likelihood of decent dollar buy orders at around 82.10-82.15.
The dollar index, which compares the greenback to six of its main peers - including the yen, euro, and sterling, fell to a 1-1/2-week low as European currencies were boosted by a sudden U-turn over the UK's contentious tax-cutting "mini-budget."
Prime Minister Liz Truss' economic plan was abandoned broadly by Britain's new finance minister, Jeremy Hunt.
Mr Hunt's action caused Britain's government bonds, currency, and stocks to jump, boosting Wall Street and global risk assets.
Despite the overnight decline in the dollar index and the risk-on sentiment, Asian currencies were mostly flat or lower.
The greenback is still in favour on bets for even more aggressive US policy tightening increased last week after scorching inflation data, with markets pricing in more jumbo-sized 75 basis point hikes for November and December.
While the dollar took a break from a surge versus other major peers on Tuesday, it maintained its proximity to a 32-year high above 149 yen as traders prepared for potential further action by Tokyo to bolster its currency.
Closing on 150, though, the risk of unilateral intervention from Japanese authorities is a worry for currency traders. However, its success may be limited, Shinichiro Kadota, a Senior FX Strategist at Barclays in Tokyo, told Reuters.
"If the market continues to march higher, especially with some volatility, the risk of intervention definitely increases," Mr Kadota said. "But at the end of the day, it's really being driven by broad dollar strength and Fed hiking expectations. As long as that is there, then upward pressure on dollar-yen remains."
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