By Jaspreet Kalra
MUMBAI (Reuters) - The Indian rupee was boosted by gains in most regional currencies on Monday, while expectations of near-term volatility climbed to a 17-month high ahead of Donald Trump's inauguration as U.S. President later in the day.
The rupee was at 86.4850 against the U.S. dollar as of 09:45 a.m. IST, up 0.1% on the day.
Asian currencies were mostly higher, with the Korean won and Chinese yuan leading gains. The dollar index declined 0.2% to 109.
With Trump set to return to the White House later in the day, currency markets are likely to be acutely sensitive to policy announcements coming out of Washington this week.
Trump has pledged to sign a flurry of executive orders on his first day in office.
"Our expectations more broadly are for Trump 2.0 to be much faster and bolder in tariff implementation, including a phased 20 ppts increase in the US's average tariffs on imports from China," MUFG Bank said in a note.
"In this context, we think there is scope for further weakness in Asian currencies from here."
Amid the challenging global set-up and persistent foreign portfolio outflows, the dollar-rupee's 1-month implied volatility, a gauge of future expectations, ascended to a 17-month peak of 4.3%.
Meanwhile, India's foreign exchange reserves have declined $8.7 billion to a 10-month low of $625.87 billion due to the central bank's frequent interventions to slow the pace of the rupee's depreciation.
"The RBI appears to now be allowing for more FX flexibility (especially to the upside) to slow the drain on its FX reserves," Nomura said in a note.
The central bank is expected to use its forex reserves more judiciously as it looks to quell market volatility amid persistent headwinds, Reuters reported last week.
(Reporting by Jaspreet Kalra; Editing by Savio D'Souza)