Tracking a smart recovery in equities, the rupee on Thursday appreciated by 12 paise to end at 66.71 against the greenback following heavy dollar selling from banks and exporters.
A sharp pullback rally in domestic stocks after a six-session downfall, predominantly weighed on currency market despite firm dollar overseas.
The domestic unit resumed substantially weak at 66.90 per dollar from overnight closing level of 66.83 at the Interbank Foreign Exchange market on initial dollar demand from state-owned banks on behalf of their importer clients.
However, it witnessed a remarkable turnaround towards the fag-end on the back of fresh selling of the American currency to 66.71 before settling firmly higher at 66.71, showing a smart gain of 12 paise, or 0.18%.
The rupee had closed with a gain of just 1 paisa in the previous session after a five-day downtrend.
The home currency is likely to witness string of volatility and will stay under immense pressure as markets brace for a Fed rate hike, a forex dealer commented.
With a possible rate hike around the corner, a strong dollar rally in the lead up to the Federal Reserve meeting is not ruled out, he added.
The US Federal Reserve is largely expected to make its first rate hike in almost a decade during its upcoming December 15-16 meeting following recent positive US jobs data.
On wider currencies markets, the dollar regained some ground against the other major currencies after a brief pullback overnight ahead of the release of US jobless claims data.
Meanwhile, the Bank of England is set to announce its latest rate decision later on the day against the backdrop of better economic data in the UK even data showed that the UK trade deficit widened much more than expected in October.
The dollar index, which tracks the world’s reserve currency against a basket of its peers, is up 0.42% at 97.74.
The stock market flagship index Sensex rallied over 216.27 points to close at 25,252.32.
Foreign investors continued their selling spree and sold shares worth Rs 527.41 crore on Wednesday, as per provisional data.
In Thursday’s forward market, premium for dollar remained under immense pressure owing to consistent receivings from exporters.
The benchmark six-month premium payable in May dropped to 194-196 paise compared to 197-199 paise and far forward November 2016 contract also fell to 402-404 paise against 404-406 paise.
The RBI fixed the reference rate for the dollar at 66.7905 and for the euro at 73.4629.
The rupee drifted sharply against the pound sterling to end at 101.26 from Wednesday’s level of 100.69 and moved down further against the euro to close at 73.09 compared to 73.02.
It, also fell against the Japanese currency to settle at 54.98 from 54.48 per 100 yen on Wednesday.