MUMBAI, Dec 19 (Reuters) - The Indian rupee declined on Tuesday as its failure to hold above a key level prompted renewed dollar buying interest, while forward premiums inched lower after more Federal Reserve officials pushed back on interest rate cut expectations.
The rupee was at 83.1875 to the U.S. dollar at 10:44 a.m. IST, compared to its previous close of 83.06.
The currency had on Monday managed to strengthen past 83, but failed to hold the level.
Its looks like "the breakdown" below 83 on USD/INR "was a false one" and we are back to the "range of 83 to 83.40 that has held for what seems forever", an FX trader at a bank said.
"We are seeing good (dollar) bids and it could be that RBI (Reserve Bank of India) is in action again."
The rupee and most other Asian currencies struggled after more Fed officials indicating that the market is probably too optimistic in its rate cut expectations.
Chicago Fed President Austan Goolsbee said the Fed is not precommiting to cutting interest rates soon, and Fed Cleveland President Loretta Mester said financial markets had got "a little bit ahead", the Financial Times reported on Monday.
The comments followed a plunge in U.S. Treasury yields and rally in U.S. equities in wake of what was seen a dovish pivot by the Federal Reserve last week.
Near-maturity U.S. yields have moved slightly up following the Fed push back. Tracking that, dollar/rupee forward premiums have dipped with the 1-year forward implied yield down to 1.71%.
Meanwhile, the Bank of Japan left its key policy rate at -0.10% and forward guidance unchanged on Tuesday.
"We expect policymakers to end negative rates in January and to phase out YCC (yield curve control) later in 2024," Capital Economics said in a note.
The Japanese yen was down to 43.50 to the dollar. (Reporting by Nimesh Vora; Editing by Varun H K)
