The Indian rupee gained the most in more than a month on Wednesday as softer U.S. inflation data bolstered hopes of a Federal Reserve rate cut in September, weighing on the dollar.
The local currency unit gained 0.31% - its highest intraday gain since July 3 - and closed at 87.4400, compared to Tuesday's close of 87.7125.
U.S. inflation data released on Tuesday showed consumer prices rose modestly in the world's largest economy in July, with impact from recent tariffs staying limited.
This provided a boost to emerging market currencies including the Indian rupee, as the odds for a September rate cut from the Fed climbed to 94%. Markets are now pricing in 60 basis points of cuts this year, lifting risk appetite among investors.
Investor confidence in the dollar was further dented after the White House said President Donald Trump was weighing legal action against Fed Chair Jerome Powell over his handling of renovations at the central bank's headquarters.
The dollar index was down 0.4% at 97.645 at 1544 IST.
“For the USD/INR pair, the outlook is bearish for the next couple of days," said Jigar Trivedi, senior currency and commodity analyst at Reliance Securities.
The uncertainty over U.S. tariffs remains the dominant drag on sentiment, Trivedi said, adding that the upcoming Trump-Putin summit in Alaska on Friday is a key risk event that could sway the currency’s direction.
The stakes of the meeting, which aims to explore a resolution to the war in Ukraine, are high for the rupee.
Market participants expect any resolution to the conflict to have a bearing on additional tariffs that President Trump has imposed on Indian goods in response to New Delhi’s continued purchases of Russian oil.
Meanwhile, most Asian currencies advanced, with the Indonesian rupiah and the Malaysian ringgit up 0.6% and 0.5%, respectively, and the South Korean won rising 0.5%.
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