Rupee little changed, notches gains for week on dollar inflows

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee was little changed against the dollar on Friday amid muted Asian peers, adding to its weekly gains, as corporate inflows propped up the currency over the period.

The rupee finished at 81.8250 per dollar compared with 81.8375 in the previous session. It advanced 0.33% for the week, while also marking its second consecutive monthly gain.

Asian currencies were trading mixed on Friday, while the dollar index jumped 0.5%.

U.S. data overnight fuelled stagflation worries with the country's economy slowing more than expected in the March quarter. One of Federal Reserve's favourite inflation gauge also rose more than economists projected.

At the same time, initial claims for unemployment benefits fell, suggesting ongoing tightness in the labour market, a major driver of inflation.

The U.S. bond market seemed to focus more on inflation than on the growth outlook. U.S. yields rose overnight, with the two-year bond yield back above 4%. A rate hike of 25 basis points by the Fed next week looks almost certain.

"We expect the rupee to remain volatile ahead of Fed and European central bank meetings next week," wrote HDFC Bank economists in a note.

The pair could trade in the 81.50-82.0 range in the run-up to the Fed meeting, with strong appreciation pressures likely to be checked by the Indian central bank, they added.

The rupee this week was supported by corporate dollar inflows related to a public listing and a fundraising, traders said, but the gains were curtailed by possible profit-taking by dollar short positions and dollar buying by public sector banks.

Some of those state-run bank dollar purchases may have been on behalf of the Reserve Bank of India, traders said.

Meanwhile, outlook for inflows improved further as Indian equities were set for gains of 2.5% this week as foreign investors returned as net buyers.

(Reporting by Anushka Trivedi; Editing by Sohini Goswami)