MUMBAI, July 29 (Reuters) - The Indian rupee declined to its weakest level since mid-March in early trade on Tuesday, as a slump in the euro sharply raised the dollar index, and demand for the greenback from state-run banks added to the pressure.
The rupee hit a low of 86.9150 against the U.S. dollar before paring losses to 86.8725, down 0.2% on the day, as of 11:10 a.m. IST. Online Matka Play
In recent sessions, the Indian currency has also been troubled by persistent outflows from local equities, amid a tepid quarterly earnings season, alongside muted prospects of a U.S.-India trade deal ahead of the August 1 deadline.
While India is still awaiting concrete developments in negotiations, sentiment surrounding a deal between the European Union and the U.S. turned sour with leaders in France and Germany lamenting the outcome.
The euro was last quoted a tad lower at 1.1584 after falling more than 1% against the dollar on Monday. Asian currencies, meanwhile, were moderately weaker between 0.2% and 0.4%.
"With net short dollar positions looking crowded and easing, the U.S. dollar could get some reprieve in the near term," MUFG said in a note. Online Matka
But the focus will also be on the Federal Reserve's policy decision due on Wednesday wherein a dovish tilt could lead to renewed U.S. dollar weakness, supporting the broader Asian FX outlook, the note added.
On the day, traders also pointed to an uptick in very-near tenor dollar-rupee swap rates spurred by anticipation of IPO-related cash dollar inflows alongside maturity of the Reserve Bank of India's forward dollar positions at the end of the month.
The spot-week USD/INR swap rate, for instance, was quoting at an implied rate of about 0.60 paisa per day, well above the prevailing overnight swap rate of about 0.30 paisa. (Reporting by Jaspreet Kalra; Editing by Harikrishnan Nair) 100 Deposit Matka | Matkaplay