Dollar index was seen trading in a thin range ahead of unemployment claims and Fed Chairman Bernanke speech later on Thursday.
The rupee on Thursday recovered by a hefty 60 paise to 53.24 against the US dollar in early trade on the Interbank Foreign Exchange market after the Reserve Bank tightened norms for utilisation of the foreign currency fixed deposit funds to check outflow of forex.
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.
Strengthening of the euro against the US dollar overseas also supported the rupee.
Fresh month-end dollar demand from importers, mainly oil companies, affected the rupee's 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.
Increased demand for the US currency from importers put pressure on the rupee.
The dollar was firm against some global currencies.
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 ICE dollar index, which measures the dollar against a basket of six currencies, traded at 79.522 from 79.595 in the previous session.
Forex dealers said fresh demand for the dollar also put pressure on the rupee.
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.
A sharp fall in dollar overseas, triggered by US Fed's overnight announcement of a fresh round of quantitative easing, and sustained capital inflows into stock markets helped rupee stay in green all through the session.
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.
In New York market, the US dollar fell against the euro on Wednesday pushing the shared currency to its highest level in more than two months, after European Central Bank President Mario Draghi said the ECB is prepared to buy sovereign bonds of countries.
The rupee had lost 13 paise to close at 55.66 on Tuesday because of fag-end dollar demand from importers.
Besides, steady euro against the American unit and a higher opening in the domestic equity market supported the rupee, forex dealers said.
The rupee had ended marginally down by 1 paise at 55.63 against the dollar on alternate bouts of buying and selling amid a fag-end recovery in equities in yesterday's session.
Foreign institutional investors pumped around Rs 100 crore (Rs 1 billion) in stocks on Tuesday.
At the Interbank Foreign Exchange market, rupee opened weak at 55.57 from last Friday's close of 55.50.
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.
In addition, dollar's weakness against other currencies overseas also supported the rupee.
In New York, dollar erased most of its losses on last Friday after the euro briefly jumped following more comments from European Central Bank President Mario Draghi about policy options.
Crude oil prices rose in Asian trade on Friday after a brief dip as dealers digested upbeat US economic data and comments from a Federal Reserve official that its stimulus programme will not end soon, analysts said.
Forex dealers said besides dollar selling by exporters, a higher opening in domestic equity market helped the rupee to strengthen.
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.
Forex dealers said besides dollar's gain against other currencies overseas, fresh demand for the American currency from importers put pressure on the rupee.
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 on Tuesday again breached the 56-level by falling 12 paise to 56.05 against the US dollar in early trade on the Interbank Foreign Exchange on increased demand for the American currency from banks and importers.
The domestic currency had ended 12 paise lower at Rs 55.80 against the dollar in Thursday's trade on fresh dollar demand from banks and importers amid a rise in May inflation.
The rupee had ended higher by 12 paise at 55.68 against the dollar in the previous session on fag-end selling of dollars by banks and exporters amid euro gaining strength overseas.
The dollar index, consisting of six major currencies, was up by 0.35 per cent, ahead of tomorrow's US Federal Reserve meeting.
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.
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