The rupee ended down 0.44% at 82.49 per dollar, marking its biggest percentage drop since Feb. 6.

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Traders were adding long USD/INR positions ahead of the U.S. inflation data that could influence the Federal Reserve’s monetary policy decision next week.

A sustained move above 82.50 “can bring in a new wave of speculative buying and open doors for USD/INR to reach 83.00,” said Anindya Banerjee, head of research – FX and interest rates at Kotak Securities.

After SVB’s sudden collapse, markets have scaled back their bets on how much further the Fed would raise interest rates, as the central bank now has to balance between fighting inflation and managing stress in the financial sector.

Futures show a 33% chance that the Fed would keep rates on hold next week, with rate cuts expected as early as June.

Only a week ago, markets were staring at a possibility of a 50 basis point (bps) hike after Fed Chair Jerome Powell’s hawkish comments.

“In the worst case scenario, where a sharper slowdown in the U.S. is coupled with financial stability risks as the Fed tightens monetary policy further could be unanimously asset negative for emerging markets,” HDFC Bank economists wrote in a note.

Across the region, Asian currencies and stocks fell as the dollar index rebounded on safe-haven bids, while U.S. bond markets steadied.

The two-year Treasury yield traded at 4.20% after slipping under 4% overnight for the first time since early October.

Rupee premiums extended their rise, with one-year implied yield hitting a six-week high at 2.36%. Traders saw 2.40% as a key resistance level.