The rupee finally broke out of its two-day consolidative trading range and managed to end higher by 2 paise at 63.58 against the US dollar ahead of the tomorrow's Union Budget.
A broadly weaker greenback overseas along with sliding crude also provided a much needed support to the rupee.
But, a caution ahead of release of macro-economic data -- core sector growth and revised GDP data -- kept the sentiment in check and saw the domestic currency falling to fresh one-week low of 63.75 in early trade before the recovery.
Dollar selling was also brisk as currency traders started repositioning ahead of the highly anticipated FOMC decision to be announced later during the NY trading session.
Though, the overall forex sentiment remained little shaky ahead of the Union Budget 2018 which is expected to strike a fine balance between populism and credible fiscal prudence.
The current BJP government will present its fifth and final full-year Budget post GST regime tomorrow and traders will keep an eye on fiscal deficit and borrowing targets for the next fiscal year.
On the international commodity front, crude price fell for the third-straight day after data from an industry body showed global crude stocks rose more than expected last week amid higher US crude oil inventories.
Brent crude futures were trading lower at USD 68.55 a barrel in early Asian trading.
Meanwhile, domestic equities continued to witness profit-taking as market participants remained on the sidelines ahead of the Union budget tomorrow.
The flagship BSE-Sensex dropped 69 points to end at 35,965.02, while Nifty lost 22 points at 11,027.70.
Earlier, the Indian unit opened substantially weak at 63.67 compared to overnight close of 63.60 at the Interbank Foreign Exchange (forex) market.
Increased month-end dollar demand and fresh foreign fund outflows largely kept trading mood highly volatile, hitting a fresh intra-day low of 63.75.
However, the local unit bounced back sharply towards the tail-end session on persistent US dollar selling to touch a high of 63.55 before ending at 63.58, showing a modest gain of 2 paise.
The RBI meanwhile fixed the reference rate for the dollar at 63.6878 and for the euro at 79.2149.
Globally, the US dollar remained broadly lower against other major currencies as investors remained cautious ahead of the Federal Reserve's monthly policy decision due later in the day.
The dollar index, which measures the greenback's value against a basket of six major currencies, was down at 88.77 in early trade.
In cross-currency trades, the rupee slipped further against the pound sterling to settle at 89.91 per pound from 89.80 and also weakened against the euro to close at 79.17 as compared to 79.02.
The local currency, however, rebounded against the Japanese yen to finish at 58.46 per yens from 58.59 earlier.
Elsewhere, the British pound remained under immense pressure against the US dollar after a UK government report projected a widespread economic damage from Brexit amid growing political uncertainty surrounding the future of UK Prime Minister Theresa May.
The euro, however, is trading higher following robust growth data from the Eurozone economy in the final quarter of 2017, rising 2.7 per cent over the year while German inflation remained steady.
In forward market today, premium for dollar displayed a steady to firm trend due to lack of market moving factors.
The benchmark six-month forward premium payable in June was quoted steady at 118-120 paise, while the far-forward December 2018 contract edged up to 256-258 paise from 255.50-257.50 paise on Tuesday.
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