The rupee hit a one-and-a-half-month low of 54.73 in opening trade on the back of weak growth data for the October-December quarter and tracking losses in the euro.
The pair currently trading at 54.55/56 versus its previous close of 54.36/37.
Indian economy grew at a
worse-than-expected 4.5% in the quarter ending December 31, hurt by a slowdown in agriculture, mining and manufacturing, government data showed on Thursday.
Traders say the clarification on the Tax Residency Certificate by the finance minister has helped calm foreign investor nerves and is now pushing down the dollar.
Gains in the dollar versus euro and other Asian currencies will however keep the upward pressure on the pair.
The USD/INR is seen moving in a 54.40 to 54.80 range in the rest of the session.