Sustained foreign capital inflows coupled with recovery in the equity market mainly boosted the rupee value against the dollar, a forex dealer said.
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 Indian stock market benchmark Sensex, which was down till afternoon session, recovered later and closed up by 38.37 points or 0.21 per cent after Europe opened higher.
The rupee had gained 11 paise to close at a fresh over 18-week high of 53.36 against the dollar in the previous session.
The rupee lost 2 paise to end at 53.47 against the dollar in Monday's session on heavy month-end dollar demand from importers and weakness in equities.
The rupee resumed higher at 54.15 per dollar as against last closing level of 54.38 at the Interbank Foreign Exchange Market and firmed up further to 54.00 at 1040 hours.
With dollar demand rising, it dropped further to 55.49, before ending slightly better at 55.43 -- a loss of 22 paise or 0.39 per cent over Wednesday.
The rupee had strengthened by 30 paise to close at two-week high of 55.36 against the dollar in Friday's trade on the back of capital inflows.
A weakening dollar against other currencies overseas supported the rupee.
Besides, steady euro against the American unit and a higher opening in the domestic equity market supported the rupee, forex dealers said.
Foreign institutional investors pumped around Rs 100 crore (Rs 1 billion) in stocks on Tuesday.
The finance ministry on Monday said the ability of the Reserve Bank to intervene in the forex market to arrest the fall in rupee is limited, even as the Indian currency declined to a 32-month low of Rs 51.50 per US dollar in the early trade.
Dealers said apart from gains in euro and the Asian currencies against the American currency overseas, higher opening in the domestic equity market and selling of dollars by exporters and some banks supported the rupee.
In New York, the dollar index climbed to its highest level in about two years on Wednesday.
Weak trends in local stocks with Sensex dropping by 129 points also weighed on rupee but some capital inflows limited its decline to some extent, forex dealers said.
The rupee resumed higher at the Interbank Foreign Exchange market but fell to a intra-day low of 57.10.
The currency hit a record low of 57.32 on June 22 and has so far shed 7 per cent value against the dollar in 2012, making it worst performing currency in Asia.
On Tuesday, the rupee had closed three paise down at 55.96 against the dollar amid foreign fund outflows and demand of the US currency from importers.
The rupee commenced higher at 55.14 a dollar from the overnight close of 55.36 at the Interbank Foreign Exchange market, and immediately touched a low of 55.30 on some dollar demand from oil importers as crude oil hovered around the $85 per barrel.
The rupee had lost 11 paise to close at 55.65 against the Greenback on Monday due to late dollar demand from importers.
Strengthening of the euro against the US dollar overseas also supported the rupee.
Dealers said Euro's gains against the dollar in overseas markets and step taken by the RBI to stablise the rupee mainly influenced the trading sentiment.
Increased demand for the US currency from importers put pressure on the rupee.
Forex dealers said fresh dollar demand from banks and particularly, month-end demand from oil importers despite weakness of the dollar in the overseas market pulled down the rupee.
Forex dealers said fresh demand for the dollar also put pressure on the rupee.
The rupee depreciated 22 paise to a record low of 78.59 against the US dollar in opening trade on Tuesday as persistent foreign funds outflows weighed on investor sentiments. At the interbank foreign exchange, the rupee opened on a weak note at 78.53 against the American dollar, then lost ground to quote at 78.59 -- its all-time low level, registering a fall of 22 paise from the last close. On Monday, the rupee declined by 4 paise to close at its life-time low of 78.37 against the US dollar.
On Tuesday, the rupee had gained 10 paise to close at 66.52.
Appreciation of the dollar overseas amid a lower opening in the domestic equity market affected the rupee
The rupee was at 61.09, breaching the previous low of 60.76 hit on June 26. It had closed at 60.225/235 on Friday.
The rupee hit a new 44-month closing high against the US currency at Rs 44.7450/7550 per dollar on Wednesday due to sustained heavy foreign investment inflows.
Forex dealers said besides dollar selling by exporters, a higher opening in domestic equity market helped the rupee to strengthen.
The dollar index, consisting of six major currencies, was up by 0.35 per cent, ahead of tomorrow's US Federal Reserve meeting.
After a brief overnight pause, the rupee climbed to a new 38-month peak against dollar early on Tuesday. In hectic trade at the Interbank Foreign Exchange market this morning, the rupee breached the crucial 45.40-dollar barrier and touched 45.36/37.
The rupee breached key resistance levels and spurted to a 38-month peak against the US currency on Wednesday, buoyed by robust foreign fund inflows and export proceeds
The rupee had lost 10 paise to close at 54.62 on Monday.
At the Interbank Foreign Exchange market, the domestic unit resumed lower at 54.42 a dollar from overnight close of 54.26 and moved in a narrow range of 54.34 and 54.46.
Banks and exporters preferred to reduce their dollar position at the current stage in view of sustained capital inflows coupled with weakness in dollar overseas, forex dealers said.
The rupee resumed better at 54.52 a dollar from previous close of 54.56 at the Interbank Foreign Exchange market and immediately touched a low of 54.56.
Trading activity was adversely affected at the Interbank Foreign Exchange market early on Wednesday because of thin attendance due to the Mumbai bandh called by the Opposition parties in the state.
The local currency commenced lower at 54.03 a dollar on Monday's close of 53.86 at the Interbank Foreign Exchange market.
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