The rupee gained strength against the US dollar in early trade on Wednesday, inching up 50 paise to 65.01 for the first time since August 14, 2015 on Tuesday.

The domestic unit snapped a five-day winning spree against the US dollar on Tuesday to close 12 paise lower at 65.41 on fresh demand for the American currency from banks and importers.

On Tuesday, the dollar weakened against the euro and yen as investors' confidence in the Federal Reserve raising rates this year continued to falter.

However, John Williams, President of the Federal Reserve Bank of San Francisco, on Tuesday said he still expected the central bank to begin raising short-term interest rates this year, despite a slowing of job gains in September.

"Things are looking up, and if they stay on track, I see this as the year we start the process of monetary policy normalisation," Williams said in a speech to the Urban Land Institute in San Francisco.

Continued strength in domestic equities is also proving a prop to the rupee. Provisional data available with the BSE showed foreign portfolio investors (FPI) were net buyers of equities to the tune of Rs 480 crore on Tuesday.

Mythili Bhusnurmath, Consulting Editor with ET Now, says to the extent bond yields are down, to the extent FII flows and FDI flows increase, the rupee should continue to appreciate and that might not be good for the real economy.

"I think macroeconomics is much too complicated, you win some lose some, and ultimately what the central bank as well as the government must keep an eye on is the real economy, because that is where human lives are involved. So I think that basic perspective must always be kept in mind," she said.

Murthy Nagarajan, head for fixed income at Quantum Mutual Fund, believes the recent rupee stability has been a combination of reduction in India's inflation differential with the developed world and the emergence of positive real interest rates, which have reduced the rupee's risk premium.

"The rupee will continue to outperform its emerging markets peers as it has since the low of August 2013," Nagarjan said.

Meanwhile, the dollar index, which tracks dollar movement against a basket of six major world currencies, stood at 96.10.

Source:- economictimes.indiatimes.com