The rupee racked up strong gains to end at a fresh two-and-a-half month high of 64.07 against the US currency, appreciating by 12 paise on heavy dollar selling amid expectations of a rate cut by the Reserve Bank tomorrow.
A spectacular rally in local equities along with steady dollar unwinding by exporters and some foreign banks also aided the recovery momentum, a forex dealer said.
This is the highest closing for the home currency since May 15, when it had ended at 64.05 against the dollar.
The uptrend in the domestic currency was supported by wide expectations that the central bank will slash rates in its Wednesday's policy meet to propel investments and economic growth against the back drop of softening inflations.
The two-day RBI policy meet concludes tomorrow. At the Interbank Foreign Exchange (forex) market, the local unit opened substantially higher at 64.10 per dollar versus overnight close of 64.19.
While keeping the favourable momentum intact, it moved in a tight range of 64.05 and 64.14 most part of the day, before ending at 64.07, showing a smart gain of 12 paise, or 0.19 per cent.
Yesterday, the rupee had ended 4 paise lower at 64.19.
The RBI, meanwhile, fixed the reference rate for the dollar at 64.0683 and for the euro at 75.7415.
Meanwhile, the dollar remained under pressure amid increased political risk as Donald Trump's administration goes from bad to worse amid doubts over whether the US Fed will go for a rate hike in near-term with ongoing concerns over the lack of inflation.
Local equity markets continued their record-setting run for the second-day in the midst of robust corporate earnings also bolstered by expectations of a rate cut by RBI's monetary policy committee amid firm global cues.
In cross-currency trades, the rupee drifted further against the pound sterling to settle at 84.61 from 84.24 per pound and also dropped against the euro to finish at 75.71 from 75.28 earlier.
The home unit, however, recovered against the Japanese yen to close at 58.02 per 100 yens from 58.07 yesterday.
Elsewhere, the British pound hit an 11-month high against the dollar on the back of robust PMI manufacturing data which indicated steady expansion to the sector.
The dollar index, which measures the greenback against a basket of currencies, was up marginally at 92.81 during Asia trade.
In forward market today, premium for dollar gained marginally due to mild paying pressure from corporates.
The benchmark six-month premium payable in January inched up to 147-149 paise from 146-147 paise and the far forward July 2018 contract also moved up to 293-295 paise from 292-294 paise.
On the international commodity front, crude prices extended their strong rally, supported by strong fuel demand, but ongoing high supplies from producer club OPEC kept prices from rising further.
US West Texas Intermediate (WTI) crude futures were at USD 50.25 per barrel -- its highest level since May 25, while the brent crude futures -- the international benchmark for oil prices, were trading up 6 cents at USD 52.78 per barrel.
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