The rupee on Tuesday erased initial gains to close eight paise down at over one-month low of 54.81 on fresh dollar demand from importers, ignoring the recovery in equities after WPI inflation decelerated below 5 per cent.
At the Interbank Foreign Exchange market, the domestic unit resumed slightly weak at 54.75 a dollar from previous close of 54.73.
It touched high of 54.53 on initial dollar selling by exporters and some banks.
Early rise in stocks amid foreign funds inflow in equities also boosted the rupee sentiment in morning.
However, it fell back sharply to a low of 54.83 before concluding at 54.81 on late dollar demand from importers.
Rupee had last ended at 54.81-level a dollar on April 5.
On Monday, it had recovered after slipping below 55-level
"Rupee which hit the lowest level in two months on Monday showed slight recovery today on the back of the better than expected WPI numbers as inflation fell below 5 per cent, i.e. within the RBI comfort zone.
"However, rupee erased earlier gains owing to global factors, where Euro was seen sustaining below $1.30 and dollar index was trading above 83-level," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
The Indian benchmark BSE S&P Sensex today recovered by 30.62 points or 0.16 per cent while FIIs picked up shares worth Rs 421 crore (Rs 4.21 billion) on Tuesday as per provisional data with bourses.
The dollar index, consisting of six major global rivals, was up by 0.20 per cent.
