Shrugging off initial weakness, the rupee today appreciated by 10 paise to close at 55.34 on the back of robust capital inflows and a weak dollar overseas.
The sentiment also favoured rupee as euro traded just below a three-and-a-half month high against dollar on optimism ahead of a German court ruling on a new EU bailout fund.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed slightly weak at 55.46 a dollar against compared to the previous close of 55.44. It touched a low of 55.54 on sustained dollar demand from importers at initial stages.
However, rupee scripted a bounce back on the back of dollar selling by exporters and capital inflows worth Rs 400 crore in Indian shares.
Thereafter, rupee touched a day's high of 55.32 before concluding at 55.34, clocking a gain of 10 paise over yesterday's close.
The dollar index, consisting of six global currencies, was down by 0.22 per cent in late European market today.
Pramit Brahmbhatt, CEO, Alpari Financial Service (India) said," Rupee regained lost ground in second half of session ahead of the German court ruling and rising expectations of the US Fed implementing easing in its forthcoming meeting. The rebound in dollar index and oil importers demand had exerted pressure on the rupee."
Tomorrow will be very important for the market players with local IIP data and meeting in Euro and US, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Meanwhile, the Indian stock market benchmark Sensex today ended up by over 86 points or 0.49 per cent.
The premium for the forward dollar reacted downwards on fresh receipts by exporters. The benchmark six-month forward dollar premium payable in February ended lower at 171-173 paise from overnight close of 176-1/2-178-1/2 paise.
The premium for far-forward contracts maturing in August also dropped to 326-328 paise from 332-1/2-334-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 55.5223 and for euro at 70.8500.
The rupee moved further downwards against the pound sterling to 88.66 from yesterday's close of 88.62 and also remained weak against the Japanese yen to end at 70.96 per 100 yen from 70.80.
The rupee, however, recovered against the euro to 70.71 from last close of 70.85.