The rupee pared early morning gains to settle down by 6 paise at 71.84 against the US currency on Monday due to continued forex outflows and gains in the dollar in global markets.
Forex traders said investor traded cautiously after domestic equity market also shed its morning gains and witnessed selling pressure during the day.
The 30-share index, which opened on a firm note, turned negative in the afternoon session before ending 72.50 points, or 0.18 per cent, down at 40,284.19. Similarly, the broader NSE Nifty slipped 10.95 points, or 0.09 per cent, to end at 11,884.50.
At the interbank foreign exchange market, the rupee had opened at 71.67 against the US dollar. Later, the local unit lost ground and fell to the day's low of 71.86.
The domestic unit finally settled at 71.84, lower by 6 paise over the previous closing price. On Friday the rupee had settled at 71.78 against the American currency.
"Rupee rose in the first half of the session but was weighed down in the latter half following some recovery in the dollar against its major crosses," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services Private Ltd.
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Somaiyaa further noted that pound continued to rally after UK Prime Minister Boris Johnson said that all Conservative Party candidates in the upcoming election have pledged to back his Brexit deal.
"We expect that the momentum could continue on the upside for the next couple of sessions but any escalation on Brexit uncertainty could keep gains capped for the currency," he said.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 270.66 crore on Monday, exchange data showed.
Brent futures, the global oil benchmark, fell 0.35 per cent to USD 63.08 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.09 per cent to 97.90.
The 10-year government bond yield was at 6.48 per cent on Monday.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.7109 and for rupee/euro at 79.04. The reference rate for rupee/British pound was fixed at 92.36 and for rupee/100 Japanese yen at 66.04.