The Indian rupee fell 48 paise on Monday, its sharpest plunge in more than five weeks, closing at 61.13 against the dollar, the lowest since August 13.
Dollar demand from importers and fears of a imminent decision by the US Fed to raise interest rates triggered an outflow of the greenback pushing the rupee under pressure.
Forex dealers expect early hike in interest rates by Fed tracking an improving economy, which might induce foreign funds to withdraw money from emerging markets, including India.
Emerging economies such as India have been receiving large slices of these ultra-cheap money, which have boosted equity and currency markets. The tide has since turned with funds flocking back home as investing in US bonds is getting more attractive. As dollars flow out of Indian markets, the rupee can depreciate. Besides, expectations of higher trade deficit data also kept the rupee under pressure.