The local currency opened lower at 65.14 as against yesterday's closing level of 64.95 at the Interbank Foreign Exchange (Forex) market on initial dollar demand.
It hovered in a range of 65.18 and 65.03 during the day before settling lower by 11 paise, or 0.17 per cent, at 65.06.
The domestic currency had gained 46 paise or 0.70 per cent yesterday.
The dollar index was traded down by 0.37 per cent against a basket of six currencies.
In New York, the dollar strengthened against the yen yesterday after the Bank of Japan left its programme of asset purchases unchanged at the close of its two-day policy meet.
However, the dollar was moderately lower against the yen in directionless Asian trade today, with a weaker Nikkei Stock Average prompting buying of the Japanese currency.
Japanese core machinery orders fell at a faster pace than expected for the third straight sequential decline amid concerns over an economic slowdown in China.
Meanwhile, the benchmark BSE Sensex ended lower by 190.04 points, or 0.70 per cent, at 26,845.81.