Registering its biggest fall in a week, the rupee on Friday weakened by 11 paise to close at 54.88 against US dollar on good demand of the American currency from importers on speculation that Federal Reserve may slow its stimulus programme, leading to capital inflows drying up.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced lower at 54.87 a dollar from previous close of 54.77 and immediately touched a low of 55.00.
About $150 million in FII flows and some dollar selling helped rupee later recover to touch a high of 54.80.
It finally settled slightly weak at 54.88 -- a fall of 11 paise or 0.20 per cent.
This is the worst show by the local currency since its 55-paise drop on May 10.
In stock markets, the BSE S&P Sensex today improved further by 38.79 points or 0.19 per cent, extending gains for the fourth straight day.
The dollar index strengthened today by 0.20 per cent against a basket of six major currencies, trading at its best levels in 10 months after reports said a Federal Reserve official has projected the possible timing of a winding down of the Fed's bond buying programme.
The bond purchases inject fresh dollar in the market and a slower rate of buying is expected to increase dollar demand as supply gets reduced, said treasury head of a bank.
Indian stocks and the rupee have benefitted from dollar liquidity induced by the US Fed stimulus.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Rupee traded low against dollar although the fall was capped by the Indian shares that traded positively. The dollar index traded positively as Euro continued to trade weak against the mighty."
Resistance for USDINR (Spot) pair is at 55.15 and the trading range for the USD/INR pair is expected to be within 54.70 to 55.20, he added.