With a hike seen as a mostly done deal after more than a year of anticipation, investor focus is fixed on how the Fed might opt to pace its tightening cycle next year. The central bank has hinted that it intends to hike rates gradually.
Earlier, the domestic unit opened higher at 67.03 against yesterday's 27-month low of 67.09 at the Interbank Foreign Exchange Market. It appreciated further on dollar selling from banks to scale-back to 66.96 before quoting at 67.08 at 1030 hrs.
Markets were also focused on whether the People's Bank of China (PBOC) would continue to guide its currency lower, with traders wary about the central bank's intentions after it set the yuan/dollar official midpoint at 4-1/2-year lows in recent session.
The rupee resumed lower by 66.80 per dollar from yesterday's closing level of 66.71 at the Interbank Foreign Exchange Market.
Spot gold was little changed at USD 1,073.31 an ounce by 0043 GMT, after closing down 0.1 percent in the previous session.
Financial markets have been living with the consequences of the energy deflation since mid-2014, and the fallout has been pervasive. The idea of another shock of that magnitude is unnerving to say the least.
The European Central Bank has adopted negative deposit rates to penalize financial institutions for parking excess funds at the central bank and encourage them to boost lending instead.
The Fed is expected to raise its target fed funds rate for the first time in nine years, ending seven years of ultralow rates.
The ECB President and his chief economist Peter Praet stoked expectations with dovish speeches in the weeks before the meeting but the ECB's Governing Council concluded that markets needed to be disappointed this time because the economic outlook has improved and new inflation forecasts were not as bad as feared.
Traders said the RBI likely stepped in to support the rupee at around 66.98 per dollar, sparking a rebound. The local currency was at 66.8600/8650 per dollar as of 12:11 pm
Michelle Meyer, deputy head of US economics at Bank of America Merrill Lynch said while there's a lot that could move the markets through the end of this week, US Fed chair Janet Yellen will remain focused on what's going on in Europe.
Asian markets too have opened in the red this morning in line with the global handover. Nikkei hit a three-week low
Analysts expect ECB chief Mario Draghi to extend the central bank's quantitative easing programme, probably announce another euro 10 billion of additional asset purchases each month, as well as cut deposit rates.
European stocks were 0.4 percent higher and the euro was hovering near a 7-1/2-year low with Draghi expected to expand the European Central Bank's money printing programme later and cut its deposit rate again.
With RBI presence, the USD-INR is expected to be stable today in a range of 66.35-66.65/dollar, says Mohan Shenoi of Kotak Mahindra Bank.
With Reserve Bank of India (RBI) presence, the USD-INR is expected to be stable today in a range of 66.35-66.65/dollar, says Mohan Shenoi of Kotak Mahindra Bank.
Events Thursday could be important for markets for months to come. The two central banks that arguably have the most impact on the course of the greenback will make it clear they are on extreme opposite policy tracks â€“ the US Federal Reserve and the European Central Bank (ECB).
US market ended lower, with selling accelerating in late afternoon trade after oil prices broke below USD 40 a barrel. Asia too started the day on a weak note.
Yellen will speak before the Economic Club of Washington at 12:25 p.m. ET (1625 GMT). She also testifies on the economic outlook before a joint committee of Congress on Thursday.
Globally, gold retreated on early European trade, snapping two days of gains, as the dollar rose against the euro ahead of expected further stimulus from the European Central Bank on Thursday, and US payrolls data later in the week.
The seasonally-adjusted unemployment rate for the euro zone was 10.7 percent in October, down from 10.8 percent in September 2015, and from 11.5 percent in the same month last year, according to data from the European statistics provider Eurostat.
We expect the USD-INR pair to remain under pressure moving into the FOMC meeting with expected mild intervention from RBI to stem volatility and the 66.20-67/dollar range is expected in near term, says Ashutosh Raina of HDFC Bank.
Gold lost 0.1 percent to USD 1,056.25 an ounce. Prices, which touched a five-year low of USD 1,052.83 on Friday, have retreated 7.5 percent this month, the most since June 2013.
Foreign funds have sold a net USD 1.5 billion in bonds and shares so far this month, their biggest since August, marking a reversal from big purchases since early 2014 that had seen India outperform many emerging markets rivals.
Manish Gunwani, senior fund manager at ICICI Prudential AMC believes dollar trajectory will be the key variable in the short-term