The rupee was trading marginally up by 5 paise at 61.27 against the dollar at 4.08 p.m. local time due to mild dollar selling by banks and exporters.
The rupee weakened by 8 paise to 61.40 per dollar in the opening trade after ending at a near 11-day high of 61.32 on Tuesday after the Reserve Bank of India (RBI) cheered the streets with the second quarter monetary policy review which was on expected lines.
The RBI increased the policy repo rate to 7.75 per cent and cut the marginal standing facility (MSF) rate to 8.75 per cent, as was widely expected. It also increased the liquidity provided through seven-day and 14-day term repos.
According to dealers, the focus will now shift to the Fed policy meet, which is due for the day.
"Investors have been gradually selling dollars since the last Federal Reserve meeting but on the eve of the next central bank gathering, we are witnessing a broad-based rally in the greenback," said Abhishek Goenka, Founder and CEO, India Forex Advisors
"A decline in consumer spending should have driven the buck lower but instead, the currency has rallied on the premise that any surprises from the Fed will be on the upside. If the Fed does not announce any specific information on QE tapering, then nothing will actually happen but if they do, or even hint at a move to taper the QE, the impact could be dramatic," Goenka said.
The yield on the 10-year benchmark government bond 7.16 per cent 2023, softened to 8.52 per cent today compared with the previous close of 8.54 per cent.
