Besides, the dollar also strengthened against other currencies such as the euro in the overseas market on worsening euro zone worries and Moody's downgrading Germany's sovereign outlook to negative, putting further pressure on the rupee, dealers said.
The domestic currency has fallen past the 56-level against the dollar after June 29.
The rupee had lost 65 paise to 55.97 in the previous session, its lowest closing in over three weeks, against dollar.
Meanwhile, the BSE benchmark Sensex recovered by 72.77 points, or 0.43 per cent, at 16,950.12.