Markets are looking at the upcoming meeting of the US Federal Reserve with trepidation as further hawkish statements from the American central bank can see the rupee breaching the 84-mark.

Any indication of a slowdown in the pace of US rate hikes will, however, spark a rally in the domestic currency.

The rupee had recently fallen below the 83-mark following rising bond yields and a strong US dollar overseas. This came on account of expectations that the US central bank will persist with another 75 basis points hike in its November 1-2 meeting to tackle inflation.

So far in 2022, the Fed has raised rates by 300 basis points.

Various officials have in the recent past indicated it will continue to hike rates till inflation cools down, raising the prospect of the US economy tipping into recession in 2023.

On Tuesday, the rupee closed at 82.73 to the dollar against the previous close of 82.69. Both the forex and stock markets were closed on Wednesday on account of Diwali Balipratipada.

One of the reasons behind the currency recovering from below 83 levels has been the intervention from the Reserve Bank of India (RBI).

Though it is largely expected that the US Fed will go for another 75 basis points hike in interest rates next month, there has been some expectations lately that it may slow down the pace to 50 basis points in the subsequent meeting.

This comes on the back of disappointing US economic data: on Tuesday, data showed a slowdown in US home prices in August because of rising mortgage rates.

Home prices rose 13 per cent in the month from the previous year, but it was lower than a 15.6 per cent rise in the previous month and over 18 per cent in June. This has led to some optimism that the Fed will hold back some of its interest rate increases particularly in December.

On Wednesday, the Euro rose back above parity against the greenback for the first time in a month. A Reuters report quoting Lee Hardman, a currency analyst at MUFG, said that it is a continuation of the dollar selloff that has been seen since the end of last week and that the markets are anticipating a potential slowdown in the pace of Fed rate hikes.

The Dollar Index which measures the dollar against six other currencies was trading lower at 110.21 against the previous close of 110.95 at the time of writing this report.

Market circles added that the guidance given by the US Fed will determine the rupee’s course in the short-term.

Some experts anticipate that the currency will continue to remain under pressure because of global recession and rate actions from various central banks. Vivek Kumar, economist at QuantEco Research, recently told BQPrime the rupee will touch 84 before the end of 2022-23.

But, on the other hand, any comments from the US central bank towards easing the amount of rate hikes could see the rupee rising to 82.50 levels.