The rupee dropped weighed down by year-end dollar demand from importers on Thursday, as risk aversion fuelled by a sharp halt in global equity rallies. The rupee was at Rs 83.25 against the US dollar at 10:50 am, lower by 0.1 per cent from its previous close of Rs 83.17.

The dollar demand from importers is likely to stay buoyant heading into the year-end period, a foreign exchange trader at a state-run bank said. "Mostly, people square their positions at this time, hence dollar demand will be there," the trader added.

The dollar index dipped slightly to 102.3 after climbing nearly 0.3 per cent overnight on Wednesday, while broader Asian currencies were mostly down. 

The 10-year US Treasury yield fell to its lowest level since July overnight in New York and was last quoted at 3.86 per cent, while the 2-year yield also slipped 7 bps to 4.36 per cent and was little changed in Asia hours.

The rupee was also pressured by risk aversion as equity rallies spurred by expectations of the Federal Reserve's rate cuts in 2024 faded, with the S&P 500 Index logging its worst session in nearly three months on Wednesday.

Domestic benchmark equity indices Nifty 50 and BSE Sensex were down slightly on Thursday as well.

The rupee will persist in its narrow range with downside likely capped near 83.35 in the near-term, said Gaurang Somaiya, a Forex and Rates Researcher at Motilal Oswal Securities.

Investors will also keep a keen eye on statements from Fed officials as they have both signalled and pushed back on rate cut expectations since Friday, Somaiya added.

Philadelphia Federal Reserve President, Patrick Harker, said on Wednesday that while it's important that the Federal Reserve starts to lower rates, they "don't have to do it too fast (and) we're not going to do it right away."