Mumbai: The rupee made a roaring comeback after a two-day downfall against the American currency and ended higher by 28 paise at 68.05 following a fresh bout of dollar selling by banks and exporters.
This is the biggest single day gain in one month.
A weak dollar sentiment across the board alongside unwinding of long positions by speculative traders ahead of key US macro data release largely supported the recovery momentum, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced slightly better at 68.29 a dollar from overnight close of 68.33 and maintained its stellar performance throughout the session driven by robust dollar supplies.
It finally settled at the day's highest level of 68.05, revealing a smart gain of 28 paise, or 0.41 per cent.
The local unit had depreciated by a whopping 41 paise in last two sessions — giving a tepid start to New Year.
Meanwhile, foreign funds sold shares worth Rs 500.49 crore on Tuesday, as per the provisional data.
In worldwide trade, the dollar retreated from a 14-year high against a basket of currencies as investors turned cautious ahead of FOMC latest minutes release and other key macro data.
The US dollar index was trading lower at 102.95 in late afternoon deals.
The RBI fixed the reference rate for the dollar at 68.1791 and for the euro at 70.9949.
In cross-currency trades, the rupee hardened further against the pound sterling to finish at 83.43 from 83.81, but fell back modestly against the euro to settle at 70.99 from 70.97 earlier.
It also turned weak against the Japanese Yen to end at 57.90 per 100 yens from 57.73 on Tuesday.
Meanwhile, domestic bourses ended marginally lower in a range-bound trade despite bullish Asian sentiment after Japanese shares jumped more than 2 per cent.
The benchmark Sensex moved down over 10 points to end at 26,633.13, while broader Nifty inched down 1.75 points to 8,190.50.
In the forward market, premium for dollar edged higher owing to renewed paying pressure from corporates.
The benchmark six-month premium for June edged higher to 145-147 paise from 142-144 paise and the far-forward December 2017 contract inched up to 284.5-286.5 paise from 284-286 paise on Tuesday.
On the global commodity front, crude oil prices continued to move higher on expectations that US crude inventories are falling and signs that oil producers will stick to agreed output cuts that took effect this week.
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