The rupee managed to recoup all its early losses and ended nearly flat at 66.68 against the strong US dollar in an extremely thin and lethargic trade.
Forex market sentiment remained cautious as many currency traders preferred to stay on the sidelines and avoided taking any long positions ahead of the US jobs report.
A series of stronger US macro data flows has increased the probability of a US Federal Reserve rate hike this year.
Robust capital flows into equities and debt largely cushioned the fall despite highly bullish dollar sentiment overseas, a forex trader said.
The home currency opened substantially weak at 66.75 against its overnight closing value of 66.69 at the Interbank Foreign Exchange (forex) market on good demand for the greenback from importers and remained immense pressure throughout the day.
After hitting an intra-day low of 66.87, the domestic currency gradually wiped out its early losses to touch a fresh high of 66.67 before settling at 66.68, revealing a mere 1 paisa gain.
It had depreciated by 18 paise yesterday.
In worldwide trade, a strong dollar put pressure on all major and most emerging market currencies as investors counted down to the September payrolls report, which is expected to influence the Federal Reserve's decision on interest rates.
The British pound suffered a sudden fall of more than 6 per cent against the US dollar in early Asian trade before recovering most of its losses amid fading expectations of tapering from ECB due to stubbornly low inflation.
The pound has been under pressure for most of this week as anxiety grows that Britain will opt for a "hard" exit from the European Union.
The dollar index, which measures its broader strength against a basket of currencies, rose 0.37 per cent to 96.98.
The RBI today fixed the reference rate for the dollar at 66.7875 and euro at 74.2744.
In cross-currency trades, the rupee shot up against the pound sterling to finish at 82.23 from 84.50 and also climbed against the euro to settle at 74.27 from 74.61.
However, it fell back marginally against the Japanese yen to close at 64.36 as compared to 64.33 per 100 yens yesterday.
On the global front, the dollar Index, which measures its
broader strength against a basket of currencies, was up 0.62 per cent at 97.57 in the afternoon trade.
The RBI today fixed the reference rate for the dollar at 66.7301 and euro at 73.8435.
In cross-currency trades, the rupee rebounded against the pound sterling to end at 82.92 from 83.30 and regained against the euro to finish at 73.85 as compared to 74.03 last weekend level.
It also rebounded against the Japanese yen and settled at 63.92 from 65.21 per 100 yens earlier.
In the forward market, premium for dollar dropped further on persistent receivings from exporters.
The benchmark six-month premium for April fell to 171.75-172.75 paise from 173.5-175.5 paise and the forward- October 2017 contract also moved down to 347-347.75 paise from
349-351 paise last Friday.
Meanwhile, the benchmark BSE Sensex jumped over 184 points to end at 27,458.99, while broder Nifty rose 63 points to close at 8,497.05.
Crude prices rebounded by over 1 percent on Monday, following highly positive statement from the producers' club OPEC that it was committed to a deal made in September to cut output in order to prop up the market.
Brent crude was up 1.18 per cent at USD 46.12 per barrel at early trade.
