Investors and currency traders rejoiced as sentiment turned highly buoyant after the US Federal Reserve expectedly left the policy rate unchanged. The country's current account deficit (CAD) narrowing sharply also boosted the sentiment.
The rupee spurted by a whopping 36 paise, or 0.54 per cent - its best one-day gain since May 25 -- to settle at 66.66 a dollar.
The local currency resumed on a firm footing at 66.86 as compared to previous close of 67.02 at the Interbank Foreign Exchange (forex) market. It soared to intra-day high of 66.65 before concluding at 66.66.
The greenback lost further ground against major six currencies after the Federal Reserve held interest rate steady at 0.50 per cent, despite signaling that a rate hike is likely by December. The dollar index was down 0.16 per cent at 95.82.
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Emerging market currencies also rallied against the US dollar after the Fed decision.
Bank of Japan (BoJ) on Wednesday kept interest rates on hold at minus 0.1 per cent in an overhaul of its massive stimulus programme.
In cross-currency trades, the rupee retreated sharply against the pound sterling to close at 87.07 from 86.79 and fell back against the euro and settled at 74.89 as compared to 74.67 yesterday.
On the domestic equity front, frantic short-covering and
value buying helped the bourses snap a six-day downtrend and bounce back smartly.
The Sensex shot up over 195 points to end at 25,960.78 while the broader Nifty surged 73 points to 8,002.30.
In the forward market, premium for the dollar continued to fall due to persistent receivings from exporters.
Crude prices rose sharply to hit one-month high on growing expectations that OPEC would overcome internal disputes and scepticism to strike a deal with key member countries to reduce crude output next week and buoyed by positive comments from Russian President Putin.