At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced sharply lower at 55.70 a dollar from last weekend's close of 55.32. It scripted a turnaround by going up to the day's high of 55.61 but the gains were temporary.
With euro trading at two-year lows on fresh concerns of Spain's borrowing costs, investors started backing the US dollar, forcing the rupee to fall sharply to a low of 55.98.
It finally ended at 55.97, a level not seen since June 28. By losing 1.17 per cent today, the currency has lost over 1.5 per cent in the last two sessions as it had shed 20 paise or 0.36 per cent on Friday.
Forex dealers said month-end dollar demand from importers, mainly oil refiners, as Brent crude dipped to USD 103.85 a barrel, weighed on the rupee. Continued inflows (Rs 109.17 crore) from FIIs in stocks could not stem its fall today.
"The dollar index edged for new highs as the global investors made run up looking for safe heaven avenues. The rising short term debt costs of Spain and also the sovereign bailout from its region has weighed on global markets pushing euro to over two-year low," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
The dollar index was up by nearly 0.2 per cent against a basket of six major currencies as Euro dropped to multi-year lows against major currnecies including the US currency and Japanese yen.
Meanwhile, the Indian stock market benchmark Sensex today plunged by over 281 points or 1.64 per cent also on renewed European debt worries. (MORE)
