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 The Indian rupee is likely to open higher versus the dollar on Wednesday, helped by the decline in Treasury yields following weak U.S. economic data.

The rupee is expected at around 81.75-81.80 per U.S. dollar at open, compared with 81.92 in the previous session. The local currency posted its worst decline in about two months on Tuesday, briefly falling below the 82 level.

While the dollar will be offered at open, volumes will likely be on the lower side and no additional positions will be created before the budget, a trader at a Mumbai-based bank said.

"Today's budget might not have a direct impact on the rupee, but markets hope that a reform-oriented budget can attract FDI (foreign direct investment) and FII (foreign institutional investors) flows eventually, leading to some solace for the rupee," Srinivas Puni, managing director at QuantArt Market Solutions, said.

Treasury yields declined overnight and the dollar index pulled back from above 102.50 following a slew of disappointing data.

Softening U.S. fourth-quarter wage pressures, January Chicago PMI falling further into recessionary readings and an unexpected drop in consumer confidence weighed on the dollar ahead of the Federal Reserve's policy decision.

The Fed, on Wednesday, is widely expected to raise rates by a quarter percentage points, but analysts do not expect the central bank to signal that it will be the last of rate hikes.

"The Fed is now reaching our estimate of the peak rate, but the FOMC (Federal Open Market Committee) is unlikely to signal the end of the tightening cycle," Morgan Stanley said in a note.

"In the statement, it could replace "ongoing increases" with "further increase", indicating that the FOMC sees the peak coming into view."

Apart from the Fed outcome, traders will be eyeing the U.S. ISM manufacturing and labour reports.

Asian currencies were trading mixed while equities were mostly higher following the overnight rally in U.S. shares.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 81.90; onshore one-month forward premium at 11 paise ** USD/INR NSE Feb futures settled on Tue at 82.0175 ** USD/INR Feb forward premium at 10.0 paise ** Dollar index at 102.16 ** Brent crude futures up 0.1% at $85.5 per barrel ** Ten-year U.S. note yield at 3.51% ** SGX Nifty nearest-month futures up 0.5% at 17,844 ** As per NSDL data, foreign investors sold a net $697.2mln worth of Indian shares on Jan. 30

** NSDL data shows foreign investors bought a net $52.1mln worth of Indian bonds on Jan. 30