By Sethuraman N R
MUMBAI, May 2 (Reuters) - The Indian rupee ended lower
on Tuesday as investors squared off their short dollar positions
ahead of key rate decisions by the U.S. Federal Reserve and
European Central Bank later this week.
The rupee , which resumed trading following an
extended weekend, closed at 81.88 per U.S. dollar against its
previous close of 81.8250.
The market expects the ECB to tweak its hawkish guidance,
while the Fed has very limited room to deviate from its
conventional monetary policy stance, said Arnob Biswas, FX
research analyst at SMC Global Securities.
The ECB's decision could be a trigger for the dollar to
rebound quickly. Markets are positioning themselves before the
meetings and squaring off their short dollar positions to either
stay neutral or take an aggressive call on the long dollar side,
Biswas said.
Public sector banks buying dollars, possibly for the Reserve
Bank of India, as inflows rose, was another reason for short
dollar positions getting covered, traders said.
Foreign investors bought over $800 million of Indian
equities in the last two sessions, according to data from the
exchange.
The S&P BSE Sensex closed at its highest level since
December 20, 2022, on Tuesday.
The two-day Fed meeting will take place later in the day,
following which the central bank is expected to raise rates by
25 basis points.
"Feds can, however, always catch you off guard. A dovish
shift without rate increases or dovish discourse notwithstanding
a rate increase can cause the US dollar to fall," Kotak
Securities said in a note.
(Reporting by Nallur Sethuraman and Nimesh Vora in Mumbai;
Editing by Sonia Cheema)
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