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The Indian rupee is expected to rise on Tuesday, tracking the dollar's decline versus a basket of its major peers to the lowest level in two months.

Non-deliverable forwards indicate rupee will open at around 82.50 to the U.S. dollar compared with 82.5650 in the previous session.

Expect "a bigger drop" on USD/INR towards the 82.30 level through today's session, a forex trader at a bank said. With the threat of an upside breakout "not an issue", expect a drift to the middle of the recent range, he added.

The dollar index dropped below 102 in New York trading and slipped further in Asia hours. The index fell in the wake of a decline in U.S. yields.

The two-year U.S. yield was down to 4.86%, off the recent high of 5.12%, ahead of the inflation data due on Wednesday. Investors assessed comments by Federal Reserve officials which while advocating two more rate hikes, indicated that the U.S. central bank is nearing the end of the hiking cycle.

Yields fell on wagers that "Wednesday's U.S. CPI inflation would affirm" that the Fed is near to halting its rate hike cycle, DBS Research said in a note.

Futures indicate that a 25 basis points rate increase at this month's Fed meeting is fully priced in. After that it is uncertain what will happen. A rate hike is possible at the September or November policy meeting or the Fed may opt for a pause for the rest of the year.

The Korean won led Asian currencies higher and risk appetite was firm.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.56; onshore one-month forward premium at 8.5 paisa ** USD/INR July futures settled at 82.65 on Monday ** USD/INR July forward premium at 5.25 paisa ** Dollar index down at 101.84 ** Brent crude futures up 0.3% at $77.9 per barrel ** Ten-year U.S. note yield at 4% ** As per NSDL data, foreign investors bought a net $105.3mln worth of Indian shares on Jul. 7

** NSDL data shows foreign investors bought a net $64mln worth of Indian bonds on Jul. 7