Overcoming the disappointment on RBI policy decisions and stock movements, the rupee on Tuesday bounced back from fresh 5-week lows and ended 10 paise higher at 53.98 on heavy US dollar sales.
At Interbank Foreign Exchange (Forex) market, the local currency resumed slightly weak at 54.10 a dollar from previous close of 54.08.
It touched a fresh 5-month low of 54.19 on early dollar demand from importers and disappointment over RBI's monetary policy were it refrained from cutting rates but as expected lowered cash reserve ratio of banks.
FIIs, which sold stocks worth nearly Rs 200 crore (Rs 2 billion) on Tuesday, also did not lend any support to the sagging rupee sentiment.
But heavy dollar selling in sync weakness in US currency overseas, the rupee staged a smart recovery to touch a high of 53.85, before concluding at 53.98 -- a rise of 10 paise.
Bankers said there were no reports of RBI intervention on Tuesday to arrest the rupee's initial fall.
The dollar index, a gauge of six major global rivals, was down by nearly 0.25 per cent as the initial impact of a massive storm in the US looked to have been less severe than feared, said dealers.
"After the disappointment from RBI, rupee was seen drifting towards its 5-week low against dollar.
"The recovery was mainly on account of dollar index coming below 80.00 levels and Euro recovering above USD 1.29 levels," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said,"Rupee witnessed a volatile session while hitting to over five-week low on sheer disappointment from RBI.
RBI's move of holding the repo rates static didn't go well with the market. The intra-day gain in dollar index also added to woes."
The premium for the forward dollar also recouped on fresh payments by corporates and banks.
The benchmark six-month forward dollar premium payable in March edged up to 132-134 paise from overnight close of 131-133 paise.
Far-forward contracts maturing in September also rose to 271-173 paise from 267-1/2-269-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 54.1650 and for euro at 69.8495.
The rupee recovered slightly against the pound sterling to 86.74 from previous close of 86.82, while it declined further to 69.89 from 69.74.
It also softened against the Japanese yen to 67.96 per 100 yen from last close of 67.94.