Tracking the strong uptick in stock markets and early dollar sales by exporters, the rupee improved further to log nearly a two-week high of 54.34.
Selling of dollars by exporters helped the Indian currency appreciate.
Forex dealers said fresh demand for the dollar also put pressure on the rupee.
A higher opening in the domestic equity market and the strengthening of euro and yen against the dollar overseas also aided the rupee, dealers said.
Forex dealers said bouts of heavy dollar demand from banks and oil importers amid lower equities attributed the rupee sentiment.
Forex dealers said continued capital inflows and euro's gains against the dollar overseas on hopes that the European Central Bank may take action soon to ease the continent's debt crisis, kept the rupee's sentiment firm.
Forex dealers said besides dollar's gains against euro and yen overseas, increased demand from oil importers for the American currency and a weak opening in the stock market also put pressure on the rupee.
The rupee on Friday again breached the 56-mark by losing 31 paise to 56.15 against the US dollar in early trade to hit a fresh one-week low, due to strong demand for the American currency from banks and importers.
Fresh bouts of dollar demand from banks and importers mainly attributed to rupee sentiment, though sustained foreign capital inflows restricting its further fall, a dealer said.
Forex dealers said sustained selling of the American currency by exporters and bullish local equity markets buoyed the rupee sentiment.
The rupee had gained 17 paise to close at one-week high of 54.77 against the dollar on fresh selling of the US currency by exporters and capital inflows in the previous session on Friday.
The rupee had gained 11 paise to end at one-week high of 54.84 against the US dollar in Wednesday's trade on sustained selling of the US dollar by exporters and capital inflows.
Forex dealers said a firm rise in local equities and sluggish dollar overseas also boosted the sentiment in rupee's favour.
Forex dealers said besides dollar's gains against euro in the overseas markets on worsening euro-zone debt crisis amid growing fears that Spain may need a full bailout, a weak opening in the stock market also put pressure on the local unit.
Forex dealers said a weak dollar overseas also boosted the rupee sentiment, cutting short a two-day losing trend.
In New York market, the US dollar pared losses on Wednesday amid reports that cut into optimism that Washington lawmakers are close to a deal to avoid going over the fiscal cliff.
Persistent selling of the American currency by exporters and bank supported the rupee
A weak dollar overseas ahead of a US Fed policy meeting also aided the rupee recovery while late weakness in domestic equities restricted the rupee's rise, forex dealers said.
The domestic unit closed higher by 11 paise at 66.56 in Wednesday's trade.
Forex dealers said rupee was under pressure throughout the session as dollar gained against rivals on hopes that European Central Bank will cut its main interest rate to a record low in a bid to support the region's economic growth.
Forex dealers said firm local equities, signs of consistent capital inflows and sustained dollar selling by exporters also boosted the rupee sentiment.
Forex dealers said a weak dollar overseas and firm local equities also supported the local currency.
Forex dealers said some capital inflows and a weak dollar overseas helped the local currency make an attempt to arrest its fall.
The rupee strengthened by 36 paise to 54.48 against the US dollar in early trade today at the Interbank Foreign Exchange on selling of American currency by exporters and banks.
Besides, a higher opening in the domestic equity market and strengthening of euro and yen against the American currency overseas supported the rupee, forex dealers said.
Dealers said firm local equities amid sustained capital inflows limited the rupee's fall.
The rupee had recovered by 10 paise to close at 55.06 against the dollar on Monday on dollar selling by exporters amid weakness in the American currency in international markets.
The rupee commenced higher at 55.07 a dollar at the Interbank Foreign Exchange market from last Friday's close of 55.16.
The rupee on Tuesday lost 11 paise to Rs 55.85 against the US dollar in early trade on the Interbank Foreign Exchange following dollar gains against other currencies overseas amid a weak trend in the equity market.
Dollar index was seen trading in a thin range ahead of unemployment claims and Fed Chairman Bernanke speech later on Thursday.
Brokers said a weak trend in euro in overseas markets also dampened the rupee sentiment against the US dollar.
The rupee also recovered against the pound sterling to 87.01 from overnight close of 87.20 and also recouped losses against the euro to 69.66 from 69.84.
Sustained dollar sales by exporters and banks and a higher opening in the equity market also boosted the rupee sentiment, forex dealers said.
Fresh month-end dollar demand from importers, mainly oil companies, affected the rupee's value against the dollar, a forex dealer said.
The rupee had lost 52 paise to close at 54.08 against the dollar on Tuesday on heavy month-end dollar demand from importers and corporates.
The local currency, which had plunged to an all-time low of 55.39 on Tuesday, crashed to 55.82 at the Interbank Foreign Exchange market in early trade.
The dollar index was down by 0.23 per cent against a basket of six major rivals after the US Federal Reserve continued to express concern about the economy and made no changes to its ultra-easy monetary policies.
The rupee rose by 11 paise to 53.36 against the US dollar in early trade at the Interbank Foreign Exchange today on continued selling of the American currency by exporters and banks.
The rupee on Monday appreciated by 9 paise to 53.75 against the US dollar in early trade at the Interbank Foreign Exchange on selling of the American currency by exporters and banks.
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