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The rupee continued its dream run for the fourth straight session by rising 28 paise to a fresh 16-month high of 65.41 a dollar on frantic selling of the US currency by exporters and banks amid dovish outlook by Fed on future rate hikes.
Overall sentiment in the forex market was largely optimistic despite the US Federal Reserve hiking interest rate for the third time since the financial crisis.
Besides, robust capital inflows and strong export growth data along with rallying local equity markets further supported the trading sentiment.
Recording positive growth for six months in a row, India's merchandise exports registered a double-digit growth by jumping 17.48 per cent to $24.5 billion in February.
The rupee resumed firmly higher at 65.40 against the Wednesday's close of 65.69 at the Interbank Foreign Exchange (FOREX) market.
It gained further ground to hit an intra-day high of 65.21 on the back of heavy dollar unwinding by speculative traders.
After giving back some initial strong gains, the domestic unit finally ended at 65.41, revealing a good gain of 28 paise, or 0.43 per cent.
This the highest closing since October 30, 2015 when it had closed at 65.27.
The RBI, meanwhile fixed the reference rate for the dollar at 65.3836 and for the euro at 70.1893.
On the global front, the greenback tumbled across the board after the Federal Reserve signalled more cautious than expected about future interest rate hikes yesterday.
The US central bank overnight raised interest rate by by 25 basis points, a move spurred by steady economic growth, strong jobs data and confidence that inflation is rising to the central bank's target.
However, less hawkish comments from US Fed on future rates hikes predominantly soothed investors nerves who had feared faster rate hikes.
Meanwhile, Pound sterling and euro traded little changed as investors keenly waited for the outcome of the Bank of England (BoE) monetary policy decision later during the European session.
The Japanese yen edged down after the Bank of Japan held policy steady.
