The Indian rupee pared initial gains to settle flat at 71.25 against the US dollar on Wednesday as participants exercised caution ahead of Reserve Bank's monetary policy outcome.
The domestic currency opened the session on a stronger note amid reports of a breakthrough in battling the coronavirus epidemic.
But, as the day progressed, the rupee gave up its gains as experts felt the apex bank might go for a status quo in its monetary policy decision on Thursday amid surge in inflation.
The RBI is scheduled to announce the outcome of its sixth bi-monthly monetary policy statement for 2019-20 on February 6, 2020.
During the day, the local unit saw a high of 71.16 and a low of 71.29. The rupee finally settled at 71.25, unchanged from its previous close.
Moreover, rising crude oil prices and strengthening of the American currency in the overseas market also weighed on the domestic unit, while heavy buying in domestic equities and foreign fund inflows supported the local unit.
More From This Section
"Rupee gained on hopes of a breakthrough in battling the coronavirus epidemic. Risk appetite back on reports of possible vaccines and treatments for the deadly Wuhan virus," said V K Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.
"All eyes will remain on RBI policy stance as markets do not expect any change in interest rate amid surge in inflation. We expect central bank to continue accommodative stance amid temporary spike in inflation," he added.
Meanwhile, the global crude benchmark Brent futures rose 2.98 per cent to trade at USD 55.57 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.10 per cent to 98.05.
The 10-year Indian government bond yield was at 6.51 per cent.
On the domestic stock market front, the 30-share BSE Sensex settled 353.28 points, or 0.87 per cent, higher at 41,142.66. It hit an intra-day high of 41,154.66. Similarly, the broader NSE Nifty rose 109.50 points, or 0.91 per cent, to 12,089.15.
In a positive sign, India's services sector activity surged to a seven-year high in January driven by sharp increase in new business orders, leading to job creation and business optimism amid favourable market conditions, according to a survey by IHS Markit.
Foreign institutional investors purchased equities worth Rs 248.94 crore on a net basis on Wednesday, according to provisional exchange data.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.1350 and for rupee/euro at 78.6857. The reference rate for rupee/British pound was fixed at 92.6021 and for rupee/100 Japanese yen at 65.36.