Mumbai: The rupee pared its early gains to close down by 8 paise at 76.62 against the US dollar on Tuesday, marking its third straight day of losses due to sustained forex outflows, concerns over inflation and expectations of rate hike by the US Federal Reserve.
Besides, heavy selling in domestic equities also weighed on the domestic unit, forex traders said.
Uncertainty over the conflict in Ukraine and an expected rate hike by the US Federal Reserve on Wednesday are keeping markets edgy, they said.
At the interbank foreign exchange market, the rupee opened strong at 76.40 against the American dollar. However, it pared gains later to enter the negative territory as investors turned cautious amid intensifying Russia-Ukraine conflict. During the day, it moved in the range of 76.32 and 76.68.
The local unit settled at 76.62 against the dollar, down 8 paise from the previous close. The rupee has declined by 0.25 per cent in three sessions to Tuesday.
"The rupee movement remains muted in the last two days even after fall in crude oil prices as market participants await FOMC meeting outcome. Rise in US bond yields ahead of Fed meeting, as market is anticipating a 25 bps rate hike, which supported broad-based dollar strength," Dilip Parmar, Research Analyst, HDFC Securities, said.
The focus will remain on US Fed statements on future rate hike and impact of geopolitical uncertainty on inflation and growth, he added.
Spot USD/INR is expected to oscillate between 76.30 and 76.85 with medium-term bullish trend, Parmar said.
Jateen Trivedi, Senior Research Analyst at LKP Securities, said that the currency market awaits trigger from Fed's policy meeting on March 16. A dovish stance shall strengthen the rupee whereas any hawkish indications can affect the rupee negatively.
"Crude prices sell-off has given strength to the rupee but rising inflation has kept pressure with hikes expected from the US Fed's meeting. The rupee has seen limited gains despite the fall in crude prices," Trivedi added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.31 per cent lower at 98.71.
On the domestic equity market front, the 30-share Sensex ended 709.17 points or 1.26 per cent lower at 55,776.85, while the broader NSE Nifty advanced 208.30 points or 1.23 per cent to 16,663.
Meanwhile, global oil benchmark Brent crude futures slipped 5.36 per cent to USD 101.17 per barrel.
Foreign institutional investors continued their selling spree in Indian markets as they offloaded shares worth Rs 176.52 crore on a net basis on Monday, according to the exchange data.