The rupee had gained 24 paise to close at nearly one-week high of 60.95 against the dollar yesterday following selling of the US currency by exporters and some banks, amid sustained heavy capital inflows.
The US and European Union on Monday announced a round of sanctions against Russian officials.
Whether the rupee can regain that momentum will largely depend on foreign investors, who have been net buyers of more than $2 billion in shares over the previous 20 sessions and of $2.3 billion in bonds in March.
Data late on Wednesday showed consumer price inflation eased more than-expected to a 25-month low of 8.10 per cent in February, while industrial output unexpectedly expanded, albeit only by 0.1 per cent.
Caution ahead of key consumer inflation data in the day also weighed.
The domestic currency hovered in a range of 60.59-60.85 per dollar during the late morning deals.
In New York, the dollar turned broadly higher on last Friday after data showed the US economy in February added far more jobs than expected, providing a more upbeat read on economic growth this year.
Overseas funds have also become strong buyers of debt, with net purchases of $5.6 billion so far this year.
Foreign investors have bought nearly $5 billion worth of debt so far in 2014.
Traders hope elections will see BJP winning a majority to usher in reforms and pull the economy out of the current slow growth.
Dealers attributed the fall in rupee to dollar's gains against euro overseas
In Hong Kong market, the dollar fell against Japanese yen in early trade after the release of a set of stronger- than-expected economic data.
Rajan warned against waiting to act until inflation expectations become entrenched, but also said the Reserve Bank of India would overlook temporary spikes in inflation.
In New York market, the dollar fell against the Japanese yen yesterday, taking cues from declines in US stocks.
In New York, the US currency fell against the Australian dollar and British pound on Monday as investors continued to weigh the potential weather drag on recent economic data, and whether or not it could sway monetary policy.
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The rupee has also been bolstered by inflows into equities and debt this month, despite concerns about the withdrawal of the U.S. Federal Reserve's monetary stimulus and China's economy.
In New York, the US dollar swung higher against many of its rivals on Wednesday.
The rupee had gained nine paise to close at nearly one- month high of 61.84 against the dollar in yesterday's trade after the government said in the interim Budget that fiscal deficit this financial year will be capped below target.
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In New York market, the dollar lost ground against most major rivals on last Friday amid mixed US data on industrial production and consumer sentiment.
Data showed the country's wholesale price-based inflation eased to an eight-month low in January as food prices moderated, offering some relief to policymakers who have long battled to get a handle on surging prices.
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