The rupee on Tuesday erased initial gains to close 8 paise down at over one-month low of 54.81 on fresh dollar demand from importers, ignoring the recovery in equities after WPI inflation decelerated below 5%.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed slightly weak at 54.75 a dollar from previous close of 54.73. It touched high of 54.53 on initial dollar selling by exporters and some banks.
Early rise in stocks amid foreign funds inflow in equities also boosted the rupee sentiment in morning. However, it fell back sharply to a low of 54.83 before concluding at 54.81 on late dollar demand from importers.
Rupee had last ended at 54.81-level a dollar on April 5.
On Monday, it had recovered after slipping below 55-level intra day tracking a massive drop in stock market.
"Rupee which hit the lowest level in two months yesterday showed slight recovery today on the back of the better than expected WPI numbers as inflation fell below 5%, i.e. within the RBI comfort zone. However, rupee erased earlier gains owing to global factors, where Euro was seen sustaining below USD 1.30 and dollar index was trading above 83-level," said Abhishek Goenka, Founder & CEO, India Forex Advisors on Tuesday.
The benchmark BSE S&P Sensex on Tuesday recovered by 30.62 points or 0.16% while FIIs picked up shares worth Rs 421 crore today as per provisional data with bourses.
The dollar index, consisting of six major global rivals, was up by 0.20%.
Inflation based on the Wholesale Price Index (WPI) dipped to nearly a three-and-a-half-year low of 4.89% in April from 5.96% in March, giving space to RBI for further monetary easing in its mid-quarter policy on June 17.
Meanwhile, the premium for the forward dollar dropped on fresh receipts by exporters.
The benchmark six-month forward dollar premium payable in October dipped to 159-1/2-161-1/2 paise from Monday's close of 164-165 paise.
Far-forward contracts maturing in April also declined to 319-1/2-321-1/2 paise from 327-1/2-329 paise.
The RBI fixed the reference rate for the US dollar at 54.6275 and for the euro at 71.0193.
The rupee remained firm against pound sterling at 83.77 from last close of 84.14. It also moved up further against the euro to 71.02 from 71.06.
Rupee, however, recovered against the Japanese yen to 53.92 per 100 yen from previous close of 54.17.