MUMBAI - The Indian rupee declined versus the U.S. dollar on Thursday on concerns that the U.S. Federal Reserve will raise borrowing costs more than anticipated.

The rupee was at 82.55 to the dollar by 10:34 a.m. IST, compared with 82.50 in the previous session.

Futures are now pricing in a peak Fed Funds Rate of almost 5.50%, with a near 30% probability that the U.S. central bank will deliver a 50 basis points rate hike at this month's meeting.

The U.S. yield curve shifted higher, with returns on the 2-year and 10-year at their highest level since 2007.

"The rising U.S. yields remain a positive tailwind for the dollar and a sustained rise in yields could influence the rupee sooner than later," Srinivas Puni, managing director at QuantArt Market Solutions, said in an email to clients.

"The next major event is the U.S. jobs data on March 10."

Data released on Wednesday added to worries over the inflation outlook in major economies. German inflation accelerated in February, while the U.S. ISM survey's measure of prices paid by manufacturers rose to 51.3 in February from 44.5 in January.

"The ISM manufacturing PMI reading adds to the list of recent data pointing to a challenging 'disinflation' process," said Yeap Jun Rong, market strategist at broker IG Asia.

Fed officials continued to broadly maintain their hawkish rhetoric. Minneapolis Fed President Neel Kashkari said he was inclined "to push up my policy path".

Atlanta Fed President Raphael Bostic said that while he still feels a funds rate of 5% to 5.25% would be adequate, it would need to stay at that level "until well into 2024".

Asian currencies were broadly lower, with the offshore Chinese yuan back below 6.90 to the dollar. The dollar index rose to 104.60.

(Reporting by Nimesh Vora; Editing by Savio D'Souza)