The rupee trimmed early gains against the dollar, although it was still stronger by 36 paise at 54.95 as banks and exporters sold the American currency, coupled with continuing capital inflows.
The dollar also lost some ground against other currencies in the overseas markets.
The rupee resumed higher at 54.89 a dollar as against the yesterday's closing level of 55.31 at the Interbank Foreign Exchange (Forex) Market. It moved between 55.02 and 54.80 a dollar before quoting at 54.95 at 1040hrs.
Sustained capital inflow from foreign funds into the equity market mainly boosted the rupee value against the dollar, a forex dealer said.
Meanwhile, the BSE 30-stock benchmark Sensex has been trading in the green zone.
In New York, the dollar's decline yesterday, after a report showed retail sales fell, raised concerns among traders that the Federal Reserve would respond by pumping more money into the financial system.