At the Interbank Foreign Exchange market, the local unit commenced weak at 54.52 and immediately touched a low of 54.75 on early hesitancy in domestic equities amid sustained dollar demand from importers.
Initial rise in dollar in the overseas markets also weighed on the rupee, said dealers.
However, emergence of dollar selling by exporters, recovery in local stocks and continued capital inflows later helped the rupee to recover from its early low.
The rupee bounced back to a high of 54.26 before settling at 54.48 -- a drop of two paise. In the last three days, the rupee has fallen by 22 paise against the dollar.
"It was a very volatile session for the rupee, which closed at 54.48 levels. It was seen appreciating on account of sharp recovery in the Euro which moved above USD 1.3100.
"Agreement on Greece bailout helped the Euro to gain against the dollar. The better than expected inflation rate also helped the rupee.
"However, later we saw a sudden depreciation caused by dollar buying by a PSU bank," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The dollar index was down by nearly 0.05 per cent against a basket of six major currencies.