The Indian rupee was trading higher on Wednesday, helped by the dollar's decline due to an overnight plunge in oil prices as well as the U.S Federal Reserve's interest rate policy decision later in the day.

The rupee was at 81.7950 to the dollar as of 10:46 a.m. IST, compared with 81.88 in the previous session.

The dollar index fell to nearly 101.70, while most Asian currencies were higher. The overnight plunge in U.S. yields on renewed worries of the country's banking sector woes dampened demand for the dollar. Shares of U.S. regional banks tumbled after the weekend, following the seizure and auction of First Republic Bank.

The S&P 500 Index lost more than a 1%. Concerns over the U.S. debt ceiling impacted risk appetite further. The White House said President Joe Biden would not negotiate the debt ceiling during his meeting with four top congressional leaders on May 9, but he will discuss beginning "a separate budget process."

The debt ceiling and growth worries prompted oil prices to sink to their lowest levels in more than a month. Brent crude is down to nearly $75 a barrel.

The focus is now on the Fed's policy decision. While the central bank will most likely raise rates by 25 basis points (bps), futures indicate that the probability of a pause has inched up slightly.

The Fed is expected to make changes to the forward guidance.

"All eyes will be on the forward guidance language. The Fed will want to ensure that any guidance underscores that it remains vigilant on inflation," ANZ said in a note.

Tracking the overnight fall in U.S. yields, rupee forward premiums moved up. The 1-year implied yield rose 4 bps to 2.22%. (Reporting by Nimesh Vora; Editing by Sonia Cheema)