The rupee depreciated 3 paise to 83.48 against the US dollar in early trade on Tuesday amid a strong American currency against major Asian rivals and an upward movement in the crude oil prices.
However, positive sentiment in the domestic equity markets and some inflow of foreign capital in the Indian equities capped the fall in the Indian currency, forex traders said.
At the interbank foreign exchange, the domestic unit opened at 83.46 against the greenback and then slipped further to 83.48, registering a loss of 3 paise compared to its previous closing level.
On Monday, the rupee had settled 7 paise lower at 83.45 against the US dollar.
Gaurang Somaiya, Forex and bullion analyst, Motilal Oswal Financial Services Ltd, said the rupee weakened amidst rising concerns that the US Federal Reserve could delay interest rate cuts as the country's inflation stayed above the central bank's 2 per cent target.
"US economy remains resilient and with a hawkish stance from the Fed, the dollar remains well supported at lower levels," he said, adding that the USD-INR (Spot) is expected "to trade sideways with positive bias in a range of 83.20-83.50".
The Federal Open Market Committee (FOMC) meeting begins on Tuesday and the interest rate decision is expected to be announced on Wednesday.
Besides, market participants are expected to take cues from the US consumer confidence index to be announced on Tuesday and the domestic manufacturing PMI data on Wednesday.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.27 per cent to 105.73.
Brent crude futures, the global oil benchmark, inched up 0.06 per cent to USD 88.45 per barrel.
In the domestic equity market, the 30-share BSE Sensex was trading 135.59 points or 0.18 per cent higher at 74,806.87. The broader NSE Nifty advanced 47.65 points or 0.21 per cent to 22,691.05.
Foreign institutional investors (FIIs) were net buyers in the capital markets on Monday, as they purchased shares worth Rs 169.09 crore on a net basis, according to exchange data.
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