The rupee on Tuesday touched a two-week low of 56.13 but recovered some of the losses to close three paise down at 55.96 against the dollar amid foreign fund outflows and demand of the US currency from importers.
After closing at 55.93 on Monday, the rupee on Tuesday resumed slightly better at 55.90 at the Interbank Foreign Exchange market.
However, rupee soon touched a low of 56.13 on erratic movements in stocks and dollar selling by exporters.
Brokers said dollar demand from importers rose after crude oil in Asia fell below the $83 mark.
But, a late rise in domestic equities with Sensex rising 154 points and weak dollar trend in overseas markets helped rupee to rebound to touch 55.88 before concluding at 55.96, a fall of three paise over yesterday's close.
After injecting $393.64 million in straight eight days since June 6 by foreign funds in equities, today FIIs sold shares worth around $16.7 million as per NSE data.
Talking about the rupee, RBI Governor D Subbarao [ Images ] on Tuesday said: "Rupee depreciation from March till today is due to both global and domestic factors. Exports not going up while increase in imports and gold import are some factors behind such depreciation."
Since early March, rupee has depreciated over 15 per cent and had touched an all-time low of 56.52 hit against the dollar on May 31.
"The rupee was seen appreciating on account the dollar weakness and high expectation of the rate cut by the central bank.
"The disappointment is clearly reflected in the markets as rupee as was weakening above 56 levels," said Abhishek Goenka, Founder & CEO, India [ Images ] Forex Advisors.
The dollar index was down by 0.25 per cent against a basket of six rival currencies.
Dealers said the two-day US FOMC meeting will be under a microscope by all the market participants but the overall view is still bearish for the rupee.