The rupee rose to a one-week high on Wednesday, helped by gains in the euro, although gains remained under check as month-end dollar demand from oil companies continued to creep in at stronger rupee levels.
The partially convertible rupee closed at a session high of 62.14 per dollar, its strongest since November 19 and above its close of 62.50 on Tuesday.
Traders said concerns over the expiry of the special currency swap windows opened by the RBI at the end of this month is likely to limit any sharp upside in the rupee.
The concessional swap windows have attracted about $25 billion, RBI deputy governor HR Khan said on Monday. They were implemented in September to bolster the central bank's forex reserves, giving it greater firepower to defend a sharp decline in the exchange rate.
"I think the rupee will hold in a range of 61.90 to 63.00 in the near-term. We will continue to monitor global dollar and euro moves for direction," said Uday Bhatt, a foreign exchange dealer with UCO Bank.
The euro hit its highest in four years against the yen and rose versus the dollar on Wednesday after German Chancellor Angela Merkel's conservatives reached a deal with the Social Democrats on forming a grand coalition.
Traders will also continue to monitor global crude oil prices after the recent Iran nuclear deal. Lower oil prices help contain imported inflation and narrow the current account deficit.
In the offshore non-deliverable forwards, the one-month contract was at 62.71 while the three-month was at 63.76.