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Indian rupee recovered from its one-month low hit in the previous session on bargain-hunting, but traders remained cautious a day before the outcome of the Federal Reserve’s policy meeting. The partially convertible rupee ended at 61.0550/0650 per dollar, compared to its close of 61.13/14 on Monday.

The local units strength was also supported by narrowing of the trade deficit, with the August number falling to $10.84bn last month from a 12-month high of $12.23bn in July. In the offshore non-deliverable forwards, the one-month contract was at 61.43 while the three-month contract was at 62.04.

The benchmark 10-year bond yield closed steady at 8.5%, as investors refrained from adding large positions ahead of the outcome of the U.S. Federal Reserve meeting. The benchmark 5-year swap rate closed down 2bps at 7.95%, while the one-year rate closed steady at 8.44%.

In call money market, cash rate CLOSED higher at 7.75/7.85% against Monday’s close of 7/7.1% India’s wholesale price inflation (WPI) eased to its lowest level in nearly 5-years in August. The WPI based inflation rose by 3.74% on a y-o-y basis last month, on the back of falling global crude oil prices, which fell to a 2-year low yesterday. Food inflation, meanwhile, eased to 5.15% in August from 8.43% last month.

The U.S. dollar fell against major currencies on Tuesday, as liquidated their positions on bets that the Federal Reserve’s monetary policy statement due out Wednesday could contain hawkish language. The PBOC is set to provide 500bn Yuan of liquidity to the country’s five largest banks to stimulate the economy.

U.K’s Sterling remained under pressure but came off earlier lows due to uncertainty over the outcome of Thursday’s referendum on Scottish independence. The euro traded steadily against the dollar, as investors remained on the sidelines, ahead of the Federal Reserve’s statement on monetary policy, anticipation of which overshadowed mixed U.S. wholesale pricing data.

The ZEW index of German economic sentiment fell to a 21-month low of 6.9 for September from 8.6 in August,

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