The rupee gave up its initial gains against the dollar by trading down 3 paise at 68.75, following month-end demand for the greenback from importers.
The domestic unit had recovered to 68.65 in early trade today as against Thursday's closing of 68.72 at the Inter-bank Foreign Exchange (forex) market.
It moved in a range of 68.78 and 68.64 before trading at 68.75 at 1102 hours.
The dollar index was down 0.31 per cent at 97.15 against a basket of six currencies in early trade.
The dollar edged down in Asian trade, but is still on track for weekly gains against its major counterparts as investors focused on the two-day meeting of the Group of 20 nations, which kicked off in Shanghai.
In New York yesterday, the dollar strengthened against the yen after official US data showed factories did brisk business in January, reinforcing earlier signs that manufacturing has started to revive after a disappointing fourth quarter.
But it weakened steadily against the euro throughout the session, apparently ignoring volatility in oil prices.
Meanwhile, the benchmark BSE Sensex was trading higher by 99.87 points, or 0.43 per cent, at 23,075.87 at 1107 hours.
Overseas, the US dollar was mostly lower against its
major rivals in early Asian trade ahead of policy decisions from the Federal Reserve and BOJ coming within hours of each other, while the yen found a steadier footing after having crept up from multi-week fall against the dollar and euro as investors adjusted positions ahead of the Bank of Japan policy review.
The US dollar was slightly lower against the yen during late Asian trade today, with many participants reluctant to take strong positions ahead of US and Japanese central bank meetings later this week.
The pound continued its march higher today, soaring to a 10-week high against the dollar, as fears that the Brits will vote to leave the European Union receded after pro-EU comments from US President Barack Obama.
Sterling jumped to as high as USD 1.4573, up from USD 1.4483 on Monday, the highest level since mid-February.
Pramit Brahmbhatt of Veracity Financial Services said, "Following cues from domestic equity market, the rupee opened on a negative note thus by appreciating dollar. But continued to face resistance of 66.80/USD. Further taking cues from domestic equity market where we saw a smart recovery and rally too from low point of the day, the rupee recovered the lost ground and even appreciated for the day."
The benchmark index Nifty closed with a gain of 108 points at 7,963. Thus to end the day, the rupee closed with a gain of 10 paise at 66.52/USD.
In forward market, the premium for dollar declined further on sustained receivings from exporters.
The benchmark six-month premium for September eased to 188-190 paise from 189-191 paise yesterday and far-forward March 2017 contract also edged down to 379-381 paise from 381-383 paise.
