Snapping a two-session losing string, the rupee on Tuesday bounced back by 22 paise to end at 54.26 on the back of fresh dollar selling by exporters and capital inflows worth about $250 million.
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.
At the Interbank Foreign Exchange (Forex) market, the local unit resumed higher at 54.40 a dollar from overnight close of 54.48, but declined immediately to a low of 54.46.
However, emergence of dollar selling by exporters on hopes of fall in dollar overseas helped the rupee to bounce back to a high of 54.25 before concluding at 54.26 ó a rise of 22 paise or 0.43%.
Provisional stock exchange data showed FIIs pumped in R1,309.88 crore (approximately $250 million) on Tuesday.
The rupee sentiment also improved on better-than-expected trade deficit data. "The trade deficit for November narrowed marginally to $19.3 billion compared to $20.9 billion in previous month," said Chetan Ahya, MD and Asia Pacific economist at Morgan Stanley in a report.
The dollar index was down by 0.18% against a basket of six major global currencies while New York crude oil was trading below $86 a barrel in Europe today.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Rupee recovered from initial losses after the markets rebounded from lows to end the day on a flat note."