At the Interbank Foreign Exchange market, the rupee commenced strong at 54.37 a dollar from last close of 54.49.
Tracking the strong uptick in stock markets and early dollar sales by exporters, the rupee improved further to log nearly a two-week high of 54.34.
However, dollar demand from importers, mainly oil refiners, and some banks as also rise in dollar overseas later weighed on the rupee. It fell to a low of 54.69 before settling at 54.61, clocking a net fall of 12 paise or 0.22 per cent.
On Monday, it was up by 27 paise or 0.49 per cent.
Pramit Brahmbhatt, CEO, Alpari Financial Services said, "The rupee traded on a volatile note initially rising on sharp gains in domestic equity
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