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The Indian rupee saw a decline on Wednesday, driven by corporate hedging and short-term speculators increasing demand for the greenback, partially offset by dollar sales from foreign banks. The rupee closed at 87.0650 against the U.S. dollar, slightly lower than the previous day’s close of 86.9500, which had surged on speculation surrounding Russia-Ukraine peace talks.

Despite significant hedging by importers, foreign banks played a key role as active sellers of dollars on Wednesday, minimizing the rupee’s depreciation. Additionally, a rally in local equities and position squaring supported the Indian currency’s recovery from recent downward pressure.

In recent weeks, the rupee’s movement has been influenced by several factors, including news on U.S. tariffs on India, S&P’s upgrade of the nation’s sovereign credit rating, and Prime Minister Narendra Modi’s proposed tax cuts on goods and services.

Foreign portfolio investors (FPIs) have shifted towards buying Indian assets in the past three trading sessions after a period of net selling amidst tariff uncertainties. This change in sentiment was attributed to optimism that the U.S. might reconsider imposing an additional 25% tariff on Indian exports.

The return of foreign inflows coincided with U.S. Treasury Secretary Scott Bessent’s accusations against India for profiteering from oil purchases during the conflict in Ukraine. Meanwhile, other Asian currencies traded mixed on the day, with the dollar index slightly higher at 98.21 as of 1549 IST.

Looking ahead, rupee traders are closely watching Federal Reserve Chair Jerome Powell’s speech at Jackson Hole, Wyoming, scheduled for Friday. Powell’s remarks could offer insights into the U.S.’s interest rate trajectory. “A signal indicating a delay in rate cuts could strengthen the dollar, while any indication of a looser policy may weigh on it and foster risk-on sentiment,” noted Amit Pabari, managing director at CR Forex.

In conclusion, the Indian rupee faced pressure from corporate activities and speculators, but foreign bank sales and positive market developments helped soften its decline. The upcoming events, including Powell’s speech and global economic conditions, will continue to impact the currency’s movement in the coming days.