The rupee ended almost unchanged on Tuesday, snapping a two-day losing streak as gains in the euro provided support, although worries about a slowing domestic economy continued to weigh on the currency.
India is expected to post April-June growth of 5.3 percent on Friday, matching the rate of the previous quarter and marking the deepest slump for nine years.
The currency's domestic concerns have been amplified as opposition parties have kept parliament in limbo over the controversial coal block allocations to private companies.
"If the GDP data prints below 5 percent, there may be some immediate depreciation pressure on the rupee," said M. Natarajan, head of treasury of Scotiabank in Mumbai.
"However, if the equity markets subsequently start building in rate cut hopes, the rupee may gain to sub-55 levels."
The partially convertible rupee closed at 55.6650/6750 per dollar as per the SBI closing rate, compared to its 55.69/70 close on Monday, snapping two sessions of losses.
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The rupee also found some support from dollar sales by a state-run power utility, which dealers estimated at $250 million.
The local currency also recovered from a session low of 55.8850 after the euro rose in afternoon trading on bets the European Central Bank would take decisive action to tackle the debt crisis in coming weeks.
The expectations were raised after the central bank said President Mario Draghi would skip the Federal Reserve's Jackson Hole meeting this week because of work.
Onshore forwards saw continued paying on importer covering and corporates loan hedging. However, the inversion in the forwards curve has declined as RBI has stayed away from any forward market interventions and as the liquidity deficit has eased, dealers said.
The annualised premium rate rose to 6.18 percent from 6.12 percent.
The one-month offshore non-deliverable forward contracts were quoted at 55.98 while the three-month was at 56.65.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 55.6725, w i th a total traded volume at $4.9 billion.