The currency held an 11 paisa range during the day, with traders citing public sector bank-led dollar bids near 81.90-levels, which capped further gains.
Those bids could have been for importers such as oil companies, but trading activity has generally remained lean, two private bank dealers said. The USD/INR pair has struggled to move past 81.80-81.90 zone over recent days, with market participants pointing to the likelihood of the Reserve Bank of India's presence.
"Momentum remains elusive in the USD/INR pair," said Anindya Banerjee, head of research for forex and interest rates at Kotak Securities. Volatility has eased out going into the May 2-3 U.S. Federal Reserve meeting and could rebound sharply after the event. "There is always the risk that the Fed may surprise the market with a pause than a hike. If this is the case, the U.S. dollar may fall after the summit." On Tuesday, Asian currencies like the Chinese yuan and the South Korean won declined about 0.30% as risk sentiment remained tepid.
The dollar index struggled to make meaningful gains on fresh worries about the health of domestic lenders and falling U.S. bond yields. The plunge in U.S.-based First Republic Bank's deposits, reported overnight, served as a reminder that risks to stability have not entirely died down and prompted traders to renew expectations that the Fed will shift quickly from hiking to cutting rates. Markets now await U.S. March-quarter GDP and monthly personal consumption price index data due in the latter half of the week to gauge the direction of the Fed's policy. (Reporting by Anushka Trivedi; Editing by Nivedita Bhattacharjee)
