The rupee fell by 27 paise on Thursday to end at a new two-year low of 65.54 against the US dollar following renewed demand for the American currency from banks and importers.
Sharp sell-off in global currency and financial markets predominantly pressurised the rupee to retreat after a brief rebound, but the greenback's weakness against other currencies overseas restricted the fall, forex dealers said.
The dollar remained broadly lower against a basket of other major currencies mainly in response to the highly anticipated minutes from the US Federal Reserve meet in July amid dovish comments which left uncertainty over the timing of an interest rate hike.
Emerging market currencies too fell on concerns over the outlook for global growth against the backdrop of slowing growth in China.
The rupee opened firmly higher at 65.17 from overnight closing level of 65.27 at the Interbank Foreign Exchange (Forex) market and gained further strength to touch a high of 65.12 on fresh bouts of dollar selling by banks and exporters amid lower dollar overseas.
However, the local unit turned highly volatile in late afternoon trade and took a sudden reversal trend to hit fresh intra-day low of 65.56 before ending at 65.54, revealing a loss of 27 paise, or 0.41%.
The rupee had gained four paise in the previous session.
The US dollar index, which tracks the greenback against a basket of six major rivals, was lower by 0.27% at 96.17. Meanwhile, the benchmark BSE Sensex plunged sharply by a whopping 323.82 points, 1.16%, to end at 27,607.82.