The rupee dropped to 84.9325, inching past its prior low of 84.93 hit in the previous session.
"Natural dollar demand (from importers), lack of supply" is "squeezing" the rupee, a currency trader at a bank said.
Overall, the bias is "definitely" towards a higher dollar/rupee, and "suspect that you are seeing a bit of build up in long positions" before the Fed.
The rupee, already pressured by worries over India's growth outlook and a well-supported dollar following Donald Trump's election victory, had to contend with data this week that showed trade deficit surged to a record high in November.
The combination of the wider trade deficit alongside a slowdown in capital inflows means that the rupee will face a large balance of payments (BoP) deficit this quarter.
Based on FX reserves data, the BoP deficit is tracking at $38.9 billion from Oct to Dec. 6, according to IDFC First Bank, a turnaround from a surplus of $9.6 billion in the September quarter.
The rupee is expected to weaken to 85.50 by March 2025 and 86.00 by September 2025, the bank said.
Other Asian currencies were mostly lower on the day with the Indonesian rupiah leading losses with a 0.4% decline. The dollar index was little changed at 106.9 ahead of the Fed's policy decision due during U.S. market hours.
The Fed is widely expected to deliver a 25 basis points cut and focus will be on whether policymakers will make any hawkish revisions to their interest rate projections going into next year.
