 "Rupee hits one-week low; bonds fall in low volumes")
Traders expect market volumes to remain low until the end of the year with foreign investors mostly staying on the sidelines.
The movements in global crude oil prices and domestic shares will be watched in the near term for direction.
Meanwhile, the rupee is expected to continue seeing downward pressure from month-end and quarter-end importer dollar demand.
"Portfolio outflows and surge in the dollar index will keep the rupee under pressure to test the initial support at 63.80 before the month-end," said Param Sarma, director and chief executive officer at NSP Forex.
"In the first/second week of January 2015, the rupee may stage a recovery to 63.00, if foreign portfolio inflows continue. We now see the rupee to establish a new trading range between 62.80 and 64.00."
The partially convertible rupee closed at 63.5150/5250 per dollar, weaker than Tuesday's 63.28/29. The unit dropped to a low of 63.56, its lowest since December 17.
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The benchmark 10-year bond yield closed 4 basis points higher at 7.96 percent. Financial markets will remain closed on Thursday on account of Christmas.
Local shares fell more than 1 percent to mark a second consecutive session of declines after blue-chips such as Housing Development Finance Corp tracked losses in Chinese stocks and the expiry of monthly derivatives contracts.
The rise in U.S. yields hurt sentiment for bonds early in the session but falls in global crude oil prices helped limit further losses.
Brent oil fell below $61 per barrel, weighed down by strong supply in the United States and a rising dollar.
In the overnight indexed swap market, the benchmark five-year swap rate closed 2 bps higher at 7.29 percent, while the one-year rate rose 3 bps to 7.88 percent.