(Reuters) - The Indian rupee weakened on Wednesday, as a hawkish tone by Federal Reserve chair Jerome Powell stoked concerns about interest rates being hiked by 50 basis points (bps) again as soon as this month.
Resuming trade after a one-day holiday, the rupee fell to 82.1275 per dollar by 10:34 a.m. IST compared with its previous close of 81.91.
The currency had only just broken out of a narrow trading zone and strengthened past 82 per dollar for the first time in a month last Friday.
Powell, in a speech to lawmakers overnight, said recent stronger-than-expected economic data in the United States suggests that the ultimate level of interest rates could be higher than previously anticipated.
"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
These were Powell's first comments following the higher-than-expected U.S. January jobs and inflation data that had led markets to expect around three more 25-bps hikes.
However, after the speech, the probability of a half a percentage point hike at the upcoming March meeting rose to 73% versus 31.4% a day prior, the CME FedWatch tool showed.
Fed funds futures implied U.S. rates peaking above 5.65% in September and holding higher than 5.5% through 2023.
Markets will await Friday's U.S. payrolls data and inflation figures due next week.
"We are maintaining our forecast of a 25-bps hike, but will be ready to change the call next week if the data continues to surprise on the upside," analysts at DBS wrote in a note.
The dollar index surged to a three-month high at 105.830. U.S. bond yields shot up, with 2-year and 10-year climbing above 5% and 4%, respectively.
Asian stocks and currencies fell, with the onshore Chinese yuan dropping to a two-month low.