Rupee inches up but US yields seen as major headwind

MUMBAI, Aug 22 (Reuters) - The Indian rupee rose slightly on Tuesday on the back of a subdued U.S. dollar, but was not expected to make a significant move higher in the wake of worries over U.S. yields.

The rupee was at 83.0650 to the U.S. dollar by 11:58 a.m. IST, up from 83.1075 in the previous session.

The 10-year U.S. Treasury yield rose more on Monday, reaching a multi-year high. It is now up 35 basis points (bps) month-to-date.

Rising U.S. yields could prompt a “re-evaluation of the risk appetite” and makes markets vulnerable to a risk event, said Srinivas Puni, managing director at QuantArt Market Solutions.

The local currency, having dropped below 83 to the dollar last Monday, has been held in a narrow range, thanks to likely intervention by the Reserve Bank of India (RBI).

“While the rupee has stabilised in the current zone of 83, risks are piling up silently, waiting for a spark to ignite,” Puni added.

A pullback on the dollar index and the recovery on the Chinese yuan on Monday helped the rupee. The dollar index dipped to 103.16.

Amid the jump in U.S. yields, investors are eyeing Federal Reserves Chair Jerome Powells comments later this week for cues on whether more rate hikes were possible and how long rates were likely to remain high.