The rupee declined 13 paise to close at 79.91 against the US dollar on Wednesday, following risk-off sentiment among investors ahead of the outcome of the US Federal Reserve meeting.

Besides, weaker Asian peers against the greenback and persistent foreign capital outflows also put pressure on the local currency, forex traders said.

However, a firm trend in the domestic equities supported the rupee, they added.

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At the interbank foreign exchange market, the local currency opened at 79.83 and finally ended at 79.91, down 13 paise over its previous close.

On Tuesday, the rupee had settled at 79.78 against the American currency.

The rupee depreciated against the dollar tracking weak Asian and emerging market peers on Wednesday ahead of the Federal Reserve’s policy meeting outcome, said Sriram Iyer, Senior Research Analyst at Reliance Securities.

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The domestic unit also weakened amid risk-off sentiments in the markets following the latest supply cuts in gas supply from Russia to Europe. The growing concerns about a US economic slowdown also added to bearish sentiments, Iyer added.

Traders remained cautious and refrained from taking large positions ahead of the Reserve Bank of India’s monetary policy committee meeting next week where it is widely seen raising rates by 25 to 50 bps, he said.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, fell 0.19% to 106.98.

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Brent crude futures, the global oil benchmark, fell 0.16% to USD 104.23 per barrel.

On the domestic equity market front, the BSE Sensex ended 547.83 points or 0.99% up at 55,816.32 points, while the broader NSE Nifty jumped 157.95 points or 0.96% to 16,641.80.

Foreign institutional investors remained net sellers in the capital market on Wednesday as they offloaded shares worth Rs 436.81 crore, as per exchange data.

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“The Indian rupee depreciated on overall strength in the US Dollar and concerns over global economic recovery. IMF cuts India’s FY23 GDP forecast to 7.4 % from 8.2%in the previous estimates, which also weighed on Rupee,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

Choudhary further said renewed outflows by FIIs also put pressure on the rupee. However, the positive tone in the domestic equities cushioned the downside.

“Rupee is expected to trade on a mixed to negative note on strong Dollar and expectations of an aggressive rate hike by US Federal Reserve,” he said, adding there are broad market expectations of a rate hike of 75 bps. A surprise 100 bps rate hike may lead dollar higher and put pressure on riskier assets,” Choudhary noted.

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The IMF on Tuesday cut India’s growth rate by 0.8 percentage points to 7.4% for the fiscal year 2022, reflecting “mainly less favourable external conditions and more rapid policy tightening”.

The IMF in its World Economic Outlook update July 2022, released on Tuesday, said that the global economy, which is still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook.

It projects the global economy to slow further to 3.2% in 2022 from last year’s 6.1%.