The rupee rose to its strongest level in nearly 17 months on Thursday as the Federal Reserve, as expected, raised the benchmark interest rate by a quarter percentage point, but gave a more dovish outlook for future hikes.

The Fed lifted its funds rate by 25 basis points, as expected, to a range of 0.75 per cent to 1.00 per cent, but said further increases would only be “gradual''.

The rate outlook knocked the dollar and eased worries of a fresh burst of capital outflows from emerging economies such as India. Some market watchers had recently speculated the Fed could hike rates four times this year as the US economy gathers momentum.

Hopes of sustained foreign flows into India have sparked a rally in the rupee, which hit as much as 65.2250 per dollar, its strongest since October 30, 2015.

Also, increased selling of the US currency by exporters and banks boosted the rupee sentiment.

Forex dealers said that besides a firm domestic equity market, the dollar’s weakness against other currencies overseas as the Federal Reserve sounded less hawkish than anticipated on future rate rises supported the rupee.

The domestic unit opened higher by 31 paise at 65.38 at the Interbank Foreign Exchange market today. It hovered in a range of 65.51 and 65.22 before quoting at 65.47, up 22 paise at 3.20 pm local time.

Yesterday, the rupee had continued its stellar run against the dollar to finish at a fresh 16-month high of 65.69 as exporters aggressively offloaded the US currency ahead of the Fed meet outcome.

Meanwhile, the benchmark BSE Sensex was trading higher by 194.48 points or 0.66 per cent at 29,592.59.

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