After touching all-time closing low on Tuesday, the rupee gained 7 paise to close at 58.70 against the US dollar on Wednesday, a day ahead of the crucial US Federal Reserve's meeting to decide on continuing with its monetary stimulus programme.
"The Fed meeting details will be available only around midnight and that will shape Thursday's movements," said Ashtosh Raina, head, forex trading, HDFC Bank.
If Fed decides to taper down its monetary stimulus or bond buying programme, it could trigger outflow of funds from emerging markets such as India. Market participants are hoping Fed chairman Ben Bernanke will continue with the plan to buy $45 billion in treasuries and $40 billion in mortgage-backed securities each month. Overseas investors have sold $485 million of Indian shares in five sessions, adding to outflows of $4.7 billion in 18 consecutive sessions of debt selling, according to data from SEBI.
Experts believe that the rupee is unlikely to fall substantially in the future is expected to strengthens against the dollar.
"I expect some appreciation in the rupee in the near term because the depreciation in the Indian currency has been very sharp," said Anindya Banerjee, currency analyst, Kotak Securities. "The near-term outlook for the rupee is 57.50-59.30 while medium term outlook is 56-59.50 against dollar."