The rupee on Wednesday appreciated by 28 paise to close at a one-week high of 55.36 against the US currency amid a surge in local stocks and dollar selling by exporters and banks.
Strength in euro in the overseas market where it was up 0.3 per cent against the dollar at USD 1.2495 also boosted the sentiment in favour of the rupee, forex dealers said.
Globally, investors returned to assets like stocks as they anticipated a monetary stimulus signal from the European Central Bank's meeting on Wednesday in a bid to restore confidence in the troubled Eurozone.
The rupee today opened strong at 55.45 from the overnight close of 55.64 at the Interbank Foreign Exchange market.
It touched a low of 55.61 in late morning deals but a sudden rise in Indian shares and dollar selling by exporters and banks helped the rupee to rebound.
The rupee touched a high of 55.32 and finally closed at 55.36, showing a rise of 28 paise or 0.50 per cent. Yesterday, the rupee gained a mere 1 paisa.
According to NSE, foreign institutional investors on Wednesday bought stocks worth Rs 269 crore in capital market segment, marking a turnaround as they had sold stocks worth Rs 1,318 crore in the last two sessions.
"We saw some selling of dollars by the FIIs in the early trade, which could be due to stock market demand.
The rupee also got support from the equity market," said T S Srinivasan, General Manager (Treasury), Indian Overseas Bank.
Hemal Doshi, Chief Currency Strategist of Geojit Comtrade said the rupee is showing bias towards appreciation and may touch Rs 54.50-54.80 level per dollar in the near-term.
Meanwhile, the Indian benchmark BSE Sensex registered its biggest single-day gain of nearly 434 points in 2012 on Wednesday, extending gains for the third straight session.
The dollar index was down by over 0.4 per cent against a basket of currencies while New York crude oil was quoting above $85
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The rupee-dollar witnessed a range bound trade within the previous day's high and low but with a strengthening bias.
The oil importers demand continued to cap gains but a move below 55.50 shall witness easing to 55.30 55.00 levels in near term."
According to Dinesh Thakkar, CMD, Angel Broking, over the years, the value of the rupee has weakened sharply from a level of 8 per dollar in mid-1974 to above 55 currently.
"Apart from falling investment inflows, it is the widening trade and fiscal deficit that has put a downward pressure on the rupee.
The macroeconomic scenario has deteriorated and the Indian economy too is under stress," he said.
Experts feel the weakness in rupee could be a factor that will deter RBI from cutting interest rates soon.
"Conjecture about a possible repo rate cut by the RBI on June 18 has driven sentiment in the past few sessions.
But, it is still in the realm of speculation as sticky inflation, weak rupee and widening twin deficits may prevent the RBI from easing," said Amar Ambani, Head of Research, IIFL.
The premium for the forward dollar improved further on sustained paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in October rose to 131-132 paise from yesterday's close of 128-129-1/2 paise and the far-forward contracts maturing in April also firmed up to 257-259 paise from 246-248 paise.
The RBI fixed the reference rate for the dollar at 55.4958 and for euro at 69.3010.
The rupee continued to rule weak against the pound sterling to end at 85.84 from overnight close of 85.59 while reacted downwards to 69.23 from 69.07 previously.
It, however, improved further sharply against the Japanese yen to 69.85 per 100 yen from 71.03.
