The rupee on Monday plunged to a two-week low of 66.61 by falling 47 paise against the US dollar on heavy demand for the American currency from importers and banks largely impacted by global economic and political headwinds.
A sudden spike in crude oil prices against the backdrop of heightened geopolitical tension in the Middle East after Saudi Arabia snapped diplomatic ties with Iran alongside worsening economic data from China predominantly reflected on trading sentiment.
Indian stock indexes too fell over 2 per cent, mirroring the global turmoil.
The domestic currency resumed substantially lower at 66.25 compared to weekend's close of 66.14 at the Interbank Foreign Exchange (forex) market on fresh bouts of dollar demand.
It kept descending, weighed down by global uncertainties and sliding local equities to hit an intra-day low of 66.63, before ending at 66.61, showing a steep loss of 47 paise, or 0.71 per cent, snapping its three-session upmove.
In the worldwide trading, the US dollar retreated sharply to a two-week low against a basket of major currencies over escalating tensions between the two Middle East powers.
Most emerging Asian currencies and financial markets witnessed a near-term rout on the first trading day of the year after weak Chinese macro data reignited fears that the world's second largest economy is slowing down amid worries about global growth recovery momentum.
Adding to the worries, China's central bank fixed its tightly controlled currency yuan at a near five-year low.
The dollar index, which tracks the world's reserve currency against a basket of its peers, is down 0.50 per cent at 98.28.
The stock market flagship index Sensex crashed by 537.55 points to end at 25,623.35, while the broader Nifty plunged over 172 points to settle at 7,791.30.
In forward market, premium for dollar showed a mixed trend amid fresh payments from banks and corporates.
The benchmark six-month premium payable in June quoted at 203-204 paise from 202-204 paise previously, while far forward December 2016 contract recovered to 413-414 paise compared to 411-413 paise earlier.
The RBI fixed the reference rate for the dollar at 66.4623 and for the euro at 72.3907.
In cross-currency trades, the rupee dropped sharply against the pound sterling to finish at 98.41 from last Friday's level of 97.54 and slipped against the euro to end at 72.63 as compared to 71.81 per euro.
While, it tumbled against the Japanese Yen to settle at 56.07 from weekend level of 54.98 per 100 yen.
