Rupee edges lower tracking fall in Asian peers, forward premiums recede

MUMBAI (Reuters) - The Indian rupee weakened slightly on Wednesday tracking its Asian peers lower as paring of rate cut bets in the United States and risk sentiment helped the dollar climb to its highest level in more than a month.

The rupee was at 83.1050 against the U.S. dollar as of 10:25 a.m. IST, down by 0.04%, compared with its previous close at 83.07.

The dollar index was at 103.42, close to its highest level since Dec. 13, after having risen 0.67% on Tuesday. Asian currencies were mostly down between 0.2% to 1%.

Federal Reserve Governor Christopher Waller on Tuesday said that while the U.S. is "within striking distance" of the Fed's 2% inflation goal, the central bank should not rush to cut its benchmark interest rates.

"The worst thing we'd have is it all reverses after we've already started to cut. We really want to see evidence that this progress ... in the real data and the inflation data continues," Waller said.

The comments helped drive up U.S. bond yields and prompted a paring of aggressive Fed rate cut expectations.

Investors are now pricing in a 65% chance of a rate cut in March, down from about 81% as of Jan. 12, according to the CME Group's FedWatch tool.

"A correction led by slightly weakened global fundamentals could result in further (rupee) depreciation," Amit Pabari, managing director at FX advisory firm CR Forex, said.

Meanwhile, rupee forward premiums edged lower with the one-year implied yield receding to 1.87%, down from its over seven-month high of 1.93% hit on Monday.

The rupee should manage to hold its ground after the initial drop and is unlikely to fall below 83.20 on Wednesday, a foreign exchange trader at a state-run bank said.

(Reporting by Jaspreet Kalra; Editing by Sohini Goswami)