Sustained dollar demand from importers and fresh capital outflows weighed on the rupee, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened sharply weak at 56.30 a dollar against overnight close of 56.11.
With dollar demand gaining ground, the rupee moved downwards in the afternoon to a low of 56.44. There was no support from Foreign Institutional Investors (FIIs) who sold stocks worth Rs 372 crore today as per provisional data.
However, with Euro bouncing back from its two-year lows against the dollar on reports that an ECB member in is favour of giving a banking licence to the Eurozone rescue fund, the sentiments in favour of rupee improved.
On the back of this strength, the rupee strengthened to 56.11, before concluding five paise weaker at 56.16. In the last four days, rupee has lost 104 paise against the dollar.
"Rupee cut day's losses to recover most of the lost ground on a rebound in Euro over reports that a proposed banking licence is to be issued to European Stability Mechanism which will allow it to access funds from ECB," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
Analysts said local events did not seem to have much impact on the rupee today.
"We expect the market to be volatile ahead of the policy meet of RBI and FED, scheduled for the month end. We still maintain the target of 56.50 levels in the days to come," said Abhishek Goenka, Founder & CEO, India Forex Advisors .
Meanwhile, the Indian stock market benchmark Sensex today closed down by over 72 points or 0.43 per cent. (MORE)
