The rupee on Friday vaulted 113 paise to close at a two and half month high of 54.30 on the back of capital inflows worth Rs 2,800 crore and heavy dollar selling by exporters and some banks.
A sharp fall in dollar overseas, triggered by US Fed's overnight announcement of a fresh round of quantitative easing, and sustained capital inflows into stock markets helped rupee stay in green all through the session.
At the Interbank Foreign Exchange market, the rupee commenced remarkably higher at 54.85 a dollar from overnight close of 55.43.
It improved further to a high of 54.29, before ending at 54.30, showing a gain of 2.03 per cent or 113 paise.
The dollar index, a gauge of six major global currencies was down by 0.48 per cent, after the US Federal Reserve on Thursday announced a new bond-purchase programme to bolster the US economy.
The central bank's steps sent US stocks much higher, reducing demand for the American currency.
Provisional data from stock exchanges showed foreign institutional investors pumped in Rs 2,833 crore (Rs 28.33 billion) in stocks today amid reports that India [ Images ] will take more bold steps on economic reforms after hiking diesel price by Rs 5.63 per litre.
"The announcement of further stimulus by the US Fed made the rupee to appreciate by more than 100 paisa.
"The gains in rupee were also supported by the government efforts to control the fiscal deficit by increasing the diesel prices which constitute around 40 per cent of the total subsidy," said Abhishek Goenka, Founder & CEO, India Forex Advisors.