The rupee on Monday gained 12 paise to close at 54.25 against the US currency on fresh selling of dollars by banks and exporters amid firm equity markets.
Persistent foreign capital inflows into equity markets amidst weakness of dollar overseas also supported the domestic currency, dealers said.
The rupee resumed higher at 54.35 per dollar as against the last closing level of 54.37 at the Interbank Foreign Exchange (Forex) Market.
It hovered in a range of 54.21 per dollar and 54.39 per dollar before ending at 54.25 per dollar -- a gain of 12 paise or 0.22 per cent.
Banks and exporters preferred to reduce their dollar position on the back of sustained foreign capital inflows into equity market coupled with weakness of dollar in the global market, a forex dealer said.
In International market, the US dollar fell further in early trade on Monday, losing further steam in the wake of Friday’s weaker-than-expected economic-growth number and caution ahead of what is expected to be a busy week of data and monetary-policy decisions.
The BSE benchmark Sensex recovered by 101 points or 0.52 per cent to finish at 19,387.50.
"Indian equity markets traded strong throughout the day and closed up by over half percent which strengthened the Rupee further," Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said.
Investors are awaiting for the central bank's rate meeting next week, which is widely expected to cut policy rates by 25 basis points, he added.