The rupee came under pressure in early trade on Thursday, falling 21 paise against the US dollar as a hawkish signal from the US Federal Reserve strengthened the American currency and weighed on emerging market currencies.

The domestic currency opened at 94.66 against the dollar in the interbank foreign exchange market and later slipped to 94.71, reversing some of the gains made in the previous session. On Wednesday, the rupee had ended 10 paise stronger at 94.50 against the greenback.

Currency dealers attributed the decline to a broad-based rally in the US dollar following the Federal Reserve's latest policy announcement. While the central bank left interest rates unchanged, as widely expected, its commentary suggested that further monetary tightening remained a possibility later this year.

The dollar index, which measures the US currency against a basket of six major peers, climbed to 100.23, its highest level in four months, reflecting renewed investor confidence in the greenback.

According to market participants, weakness across Asian currencies also added pressure on the rupee. Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said most asset classes had traded lower against the dollar, helping sustain demand for the US currency.

Despite the stronger dollar, crude oil prices moved lower. Brent crude, the global benchmark, was trading down 1.68 per cent at USD 78.21 per barrel in futures trade, offering some relief for oil-importing economies such as India.

Domestic equity markets also opened in negative territory, with the Sensex falling more than 100 points in early trade and the Nifty slipping below the 24,100 mark.

However, foreign institutional investors remained supportive, emerging as net buyers of Indian equities worth Rs 101.59 crore in the previous trading session.

Market sentiment received some support from reports suggesting progress in diplomatic efforts between the United States and Iran. According to traders, the two countries have electronically signed a memorandum of understanding aimed at ending hostilities and creating a framework for negotiations over Iran's nuclear programme. Talks are expected to continue in Geneva on Friday.

Amit Pabari, Managing Director of CR Forex Advisors, said the development had improved investor sentiment, although concerns remain after US President Donald Trump warned that military action could resume if Iran fails to comply with the proposed framework.

Investors are also closely watching developments on the India-US trade front after Prime Minister Narendra Modi and President Trump directed officials to work towards a balanced and commercially meaningful trade agreement. The discussions took place on the sidelines of the G7 Summit, marking the first substantive engagement between the two leaders in over a year.

Further momentum to the negotiations is expected next week with a visit by US Trade Representative Jamieson Greer to India, as both sides seek to advance discussions on the proposed trade pact.

Analysts said the rupee's near-term direction will depend on the trajectory of the US dollar, global risk sentiment, crude oil prices and progress on key geopolitical and trade developments.

With IANS inputs