The Indian rupee treaded water on Thursday after hitting a two-month low in the previous session, with firmer local shares underpinning sentiment.
However, political tensions globally and financial scandals in India could keep the rupee under pressure in the coming weeks, traders said.
Foreign equity inflows, which were a key factor for the rupee's 1.8 percent rise this year, are likely to be swayed by year-end profit-taking and developments in the euro zone.
"I think, euro zone will continue to be the single most driving factor for the rupee," said Rohan Naik, head of forex trading, Standard Chartered Bank.
At 11:11 am, the partially convertible rupee was at 45.71/72 per dollar, a tad weaker than 45.695/705 on Wednesday when it had touched 45.8350, its lowest since September 21.
The rupee should move in a 45.65-45.85 band and volume will be light due to the US Thanksgiving holiday, traders said.
"We expect the rupee to touch 46 between now and December end as the stock market should consolidate now," Naik said. The main Indian stock index was trading up 0.6 percent, while some companies named in a bribery scandal fell sharply initially but then rebounded.
On Wednesday, eight top officials in financial firms were arrested in India's third biggest corruption scandal in the past few months. The federal police said the officials received bribes valued at hundreds of millions of dollars.
The government and one of the companies whose executive was arrested said the alleged corruption were of an individual nature.
"It is an insignificant amount, it is individual personal greed, it is not systematic failure," R. Gopalan, secretary financial services told NDTV broadcaster late on Wednesday.
Foreign fund flows have been tapering off into Indian equities this month. On Tuesday, there was an outflow of $306.13 million, compared with an inflow of $116.12 million on Monday.
The euro struggled near a two-month low as the euro zone debt crisis showed signs of spilling over from Ireland to other euro zone members even after Ireland unveiled an ambitious austerity plan.
The dollar index, which tracks the greenback's performance against a basket of major currencies, was down 0.10 percent at 79.791, just shy of a two-month high of 80.000.
The one-year onshore dollar premium was steady at 203.5 points, while the six-month forward premium <INR6M=> rose slightly to 118.50 points from 117 points on Wednesday.
One-month offshore non-deliverable forward contracts were quoted at 45.92, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange was at 45.6925, while the contracts on the MCX-SX and United Stock Exchange were both at 45.6950.
Total traded volume on the three exchanges were moderate at $1.4 billion.