The rupee on Friday weakened by a whopping 46 paise to close at a fresh 2-month low of 55.16 on the back of a surge in US dollar demand from importers and sustained weakness in local stock market.
The rupee commenced lower at 54.85 a dollar from its previous close of 54.70 at the Interbank Foreign Exchange (Forex) market on Friday and immediately touched a high of 54.83 tracking the initial rise in domestic stock market.
However, it later turned weak and fell to a low of 55.20 on a strong dollar in overseas market amid investors winding up positions in global equities, said traders.
Coupled with a surge in dollar demand and sudden sell-off in Indian stocks, the rupee remained under pressure to finally close at 55.16 -- a fall of 46 paise or 0.84%.
As global stock markets took a plunge on risk aversion, investors bet on the US currency, driving up the Dollar Index by 0.29% against a basket of six major rivals.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The US "fiscal cliff" concerns continued to dominate global financial markets. A weak domestic sentiment also added fuel to the weakening momentum as the rupee touched September 13 lows. Defence-related payments and FCCB redemptions this month also put pressure."
The Indian stock market benchmark Sensex on Friday closed down by 162 points or 0.88% at two-month lows.
"The earlier gains in rupee were seen on account of recovery in the euro. The weakness in rupee was supported by the sudden fall in the local stock markets," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Yesterday, rupee had snapped a three-day losing trend by rising 18 paise.
"Redemptions worth $261 million are scheduled for this month. That exerted downward pressure on rupee," said Brahmbhatt.
The premium for the forward dollar ended with slight changes either sides.
The benchmark six-month forward dollar premium payable in April edged up to 144-1/2-146-1/2 from overnight close of 144-146 paise.
However, far-forward contracts maturing in October softened to 280-1/2-282-1/2 paise from 281-283 paise.
The RBI has fixed the reference rate for the US dollar at 54.9915 and for euro at 70.2230.
The rupee fell back sharply against the pound sterling to 87.40 from Thursday's close of 86.72 and also dropped against the euro to 70.25 from 69.82.
It also reacted downwards against the Japanese yen to 67.98 per 100 yen from 67.41.