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The Indian rupee rose to its highest level in nearly three weeks as trade talks with the US cheered traders. The currency fell as much as 0.4 per cent to 87.72, the lowest since August 29. The currency reached a 3-week high against the US dollar, recovering for the third consecutive day. It has gained 75 paise from its record low of 84.49 per dollar, hit on September 11.

Earlier, on Wednesday, the rupee recorded its best start in 2 weeks, up 23 paise. The currency opened stronger at Rs 87.82 against the US dollar. The opening was up by 23 paise against the previous close at Rs 88.09, appreciating 7 paise intraday. This was the currency's best start in the past two weeks' session. It is the first time in two weeks that the rupee opened below the 88 mark.

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Analysts said that the rupee is likely to face resistance around 88.20. Despite support from bilateral trade talks, a decisive break below 87.90 could open the way toward 87.50 or to 87.20, they said. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 96.73, higher by 0.11 per cent. Emerging market currencies, including the rupee, have gained support as reports suggest that the US economy is on the verge of recession.

According to Zee Business research, several key factors are contributing to the consecutive recovery of the Indian rupee.

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The dollar index has dropped below 96, hitting its lowest level since February 2022. This has supported the rupee's recovery and strengthened several other major currencies against the dollar, such as the Euro (4-year high), Yuan (11-month high), Pound (3-month high), and Yen (2-month high).

The Indian market is at a 2-month high. Foreign Institutional Investors (FIIs) have reduced their selling pace, while Domestic Institutional Investors (DIIs) have bought strongly for the 16th consecutive day.

Most brokerages expect the dollar index to move towards 92-89 per dollar, including:

1) Motilal Oswal expects the dollar index to move towards 86-85 per dollar

2) Nirmal Bang expects the dollar index to move towards 83 per dollar

3) YA Wealth Research expects the dollar index to move towards 87 per dollar

Hopes of a trade deal between India and the US have increased. Renewed discussions between India and the United States on trade have likely boosted the sentiments around the rupee. Optimism about these talks has contributed to the currency's strengthening.

The US Federal Reserve entered into a two-day policy meeting on Tuesday, where it’s widely expected to cut interest rates. There's an expectation of a 0.25 per cent cut in US interest rates. This expectation has weakened the US dollar globally, providing support to emerging market currencies like the rupee. 

Amid the recovery of the rupee and the expectation of further weakening of the dollar, investors are keeping a close watch on the US Federal Reserve's comments on the economy and monetary policy, developments in India-US trade discussions, performance of the Indian equity market, actions of foreign institutional investors, RBI's future actions and the dollar index movement.

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Currently working as a trainee Sub-Editor at Zee Business, Shristi Rani is passionate about storytelling and delivering content that engages diverse audiences across digital platforms.

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