Fresh foreign capital outflows also affected the rupee sentiment, a forex dealer said.
The gains were capped due to month-end dollar demand from importers, mainly oil firms
India's foreign exchange reserves declined by a whopping $4.343 billion to $367.646 billion.
Snapping its 3-day winning spree against the American currency, the rupee on Wednesday dropped by 21 paise to end at 66.64 on fag-end dollar demand from banks and importers despite a sharp rally in domestic equities.
Bullish dollar sentiment overseas alongside sluggish domestic equity market predominantly impacted the domestic currency
The rupee is expected to become more jittery and choppy in the near-term
This is the biggest one-day fall in the rupee since August 3, 2016
The rupee resumed lower at 63.65 per dollar as against previous closing of 63.58 at the Interbank Foreign Exchange (Forex) market.
This is the highest closing level since May 11, 2016 when the rupee had finished at 66.56
In line with rally in stocks, the Indian rupee on Monday appreciated for the second straight session and closed with a eight paise gain at a one-week high of 61.36 against the Greenback.
The Rupee is seen strengthening against the dollar.
The dollar strengthened against major world currencies.
The domestic currency has gained by four paise or 0.06 per cent in two days.
Robust foreign capital inflows into upbeat domestic equity markets on the back of better macro fundamentals helped the rupee to gain
The rupee had slumped to its all-time closing low of 68.80 a dollar on August 28, 2013.
The rupee recovered by 11 paise to trade at 60.84 against the US dollar in early trade today on selling of the American currency by banks and exporters.
Increased month-end demand for the US currency from importers put pressure on the rupee
The rupee appreciated further on Thursday, adding 106 paise to 66.01 against the dollar, after steps taken by new Reserve Bank of India Governor Raghuram Rajan to attract US currency inflows boosted market sentiment.
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The newly-appointed Governor Raghuram Rajan said on Wednesday Reserve Bank of India will offer a window to banks to swap the fresh FCNR-B dollar funds, mobilised for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum. According to Bank of America Merrill Lynch, "the move should fetch $8-10 billion", adding that the move would help in shifting rupee risks away from NRIs at a time of extreme volatility.
Good foreign capital inflows failed to restrict the rupee's fall against the dollar
The rupee weakened by 27 paise to trade at six-week low of 60.45 against the US dollar in early trade today at the Interbank Foreign Exchange market on high demand for the American currency from importers.
Banks and exporters preferred to reduce their dollar position in view of its weakness.
Weakness of dollar in the global markets and foreign capital outflows also affected the rupee sentiment.
Finance Minister P Chidambaram on Monday said the currency will find its level as steps being taken by the government to contain fiscal and current account deficits will improve investor sentiments.
The depreciating rupee against dollar has a short-term benefit for the IT industry and the sector should not depend on currency management for profits, a top functionary of industry body Nasscom said.
The rupee on Wednesday snapped its two days of losses and edged up two paise to end at 59.27 against the dollar following late selling of the US currency by exporters.
Dollar's strength against other currencies overseas capped the rupee's gain
The rupee depreciated further by 7 paise to 65.12.
The S&P BSE Sensex plunged 128 points to end at 25,102.
Forex market was shut on Tuesday on account of 'Mahavir Jayanti'.
Investors are keenly awaiting the announcement of the macroeconomic data-IIP and CPI due on Tuesday.
The rupee had gained by 50 paise or 0.75 per cent in two weeks.
The Indian rupee was off to a bad start in the new year as it suffered the worst single-day drop in over two weeks today by falling 32 paise to end at 63.35 against the US dollar.
Indian rupee appreciated by 35 paise to end at two-week high of 63.03 against the greenback.
The RBI fixed the reference rate for the dollar at 65.2525 and for the euro at 72.1954.
It is the rupee's biggest single-day gain this year.
The domestic unit had recovered to 68.65 in early trade on Friday as against Thursday's closing of 68.72.
The dollar gained against other currencies overseas.
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