MUMBAI: The Indian rupee rose by the most in two months against the US dollar on Monday, tracking a broad rally in its Asian peers on expectations that the US Federal Reserve may further dial back the size of its rate hikes.

The rupee last traded at 82.36 per dollar, up from 82.72 in the previous session. It was the local unit’s biggest one-day percentage jump since Nov. 11.

With the rupee managing to sustain its opening move above the key near-term level of 82.40, the outlook has definitely improved, a trader at a private bank said.

Obviously, the rupee’s journey to 82, and possibly higher, will be at a measured pace, the trader added.

Asian currencies jumped after US data – showing service-sector activity unexpectedly contracted in December, while wage growth slowed more than expected – backed expectations that the Fed will opt for a smaller 25 basis points hike at its Feb. 1 meeting.

The Fed had raised rates by 50 bps at its December meeting and by 75 bps in each of the four meetings before that.

The dollar index plunged on Friday, and extended losses on the day. The Korean won led Asian currencies higher, soaring more than 2%.

“We have been hinting at the technical levels of 82.40 and 83.00 being decisive in the next directional move for the rupee,” said Jayram Krishnamurthy, founder of Almus Risk Consulting.

A sustained move below 82.40 will boost the confidence of rupee bulls and it was likely the 82 level could be challenged, Krishnamurthy said.

The focus now turns to Fed Chair Powell’s speech on Tuesday and then to the US inflation data on Thursday. The last two US inflation readings have surprised on the downside.

Tracking the fall in US yields, the rupee’s forward premiums rose with the 1-year near 2.10%.