The rupee surrendered most of its early gains but managed to end higher by a modest two paise at 63.84 against the dollar in highly volatile trade despite the outlook for the US currency remaining lacklustre.
Extremely bearish overseas tone for the dollar along with abundant capital inflows into domestic equities largely supported the local currency.
Strong dollar demand from some foreign banks on behalf of their clients to meet import requirements predominantly outweighed supply, forex dealers said.
Globally, the dollar lodged near a three-year low against a basket of currencies as fears of a possible US government shutdown added to underlying weakness that stems from the growing trend toward monetary policy normalisation around the world.
On the international commodity front, crude prices dropped sharply, putting them on course for the biggest weekly falls since October, as a bounce-back in US production outweighed ongoing declines in crude inventories.
Brent crude futures were trading sharply lower at USD 68.65 a barrel in early Asian trading.
Meanwhile, domestic equities continued their record- setting spree for the third straight day on frantic buying activity in light of the recent earnings amid enthusiasm about global economic growth.
The flagship Sensex shot-up 251 points to close at 35,511.58, while Nifty jumped 78 points to 10,894.70.
Maintaining its bullish stance, the rupee resumed sharply higher at 63.70 from its overnight close of 63.86 at the Interbank Foreign Exchange (forex) market on sustained dollar unwinding by exporters and banks.
It strengthened further to hit the day's high of 63.62 in mid-morning deals before succumbing to heavy dollar pressure.
After trading in a tight range for most part of the session, the home currency finally settled at 63.84, showing a gain of 2 paise, or 0.03 per cent.
For the week, the rupee depreciated by 21 paise.
The dollar index, which measures the greenback's value against a basket of six major currencies, was down at 90.33 in early trade.
In cross-currency trades, the rupee recovered modestly against the pound sterling to finish at 88.54 per pound from 88.59 and remained weak against the euro to settle at 78.27 from 78.15 earlier.
It also fell back against the Japanese yen to close at 57.68 per 100 yens from 57.40 yesterday.
Elsewhere, the British pound turned soft against the US dollar in initial knee-jerk reaction after UK retail sales fell 1.5 percent in December -- its worst slump since June 2016 with retailers contributing almost nothing to GDP growth in the fourth quarter.
At the same time, the common currency euro traded near the three-year high struck on Wednesday.
In forward market today, premium for dollar displayed weak to steady trend owing to lack of market moving factors.
The benchmark six-month premium payable in June eased to 123-125 paise from 124.50-126.50 paise and the far forward December 2018 contract softened to 261-263 paise from 261.50-263.50 paise previously.
Disclaimer: No Business Standard Journalist was involved in creation of this content
