The Indian rupee closed slightly weaker against the U.S. dollar on Wednesday, ending a choppy session shaped by mixed portfolio flows, the likely maturity of non-deliverable forward (NDF) positions, and widespread caution ahead of the U.S. Federal Reserve’s policy announcement.

The rupee USDINR settled at 89.9650 per dollar, compared with 89.8750 at the previous close. It traded in a range of 89.77–90.08 during the day, finding some relief after hitting a record low of 90.42 last week.

A trader at a private bank noted that early gains—supported by inflows linked to equity fundraising—were erased as dollar buying picked up in afternoon trade.

Most Asian currencies traded in a narrow range, while the dollar index DXY dipped to 99 ahead of the Fed’s decision. Indian equity benchmarks, the Sensex and Nifty 50, fell about 0.3% each, tracking modest declines across regional markets.

The Fed is widely expected to cut interest rates by 25 basis points later today. Market focus, however, remains squarely on the accompanying commentary and updated rate projections. Investors have tempered expectations for further cuts in 2026 amid persistent inflation worries and signs of resilience in the U.S. economy.

Money markets currently price in roughly two additional Fed cuts in 2026, on top of the reduction anticipated today. The probability of a cut as soon as January 2026 stands near 21%.

"How forcefully (Fed Chair) Powell communicates a message of pause is likely most important for the dollar, but steps to add liquidity to the markets could also play a role in the FX reaction," analysts at MUFG said in a note.

Anticipation of a potentially hawkish tone from the Fed also weighed on the rupee’s forward premiums. The 1-year implied yield declined by 4 basis points to 2.54%.