Snapping five-session losing streak, the rupee today gained 30 paise to close at 54.55 against the dollar on fresh selling of the US currency by banks and exporters, and hopes of more capital coming into the banking post after Parliament passed Banking Bill.
Forex dealers said signs of persistent foreign capital inflows also helped the rupee to bounce back. A sharp recovery in euro against the dollar in the global market also buoyed the local currency, they added.
The local currency hovered in a range of 54.51-54.93 at the Interbank Foreign Exchange (Forex) market, before settling at 54.55 against the dollar, a gain of 30 paise, or 0.55 per cent, from its previous close, they added.
Foreign institutional investors (FIIs) bought shares around USD 169.24 million (Rs 922.37 crore) yesterday, as per provisional data from the stock exchanges.
In signs of capital inflow into equity markets, the BSE benchmark Sensex rose for the second day today by ending 111 points higher at 19,476.
"Sharp recovery in the euro and the falling dollar index helped the rupee to reach the levels of 54.50 during the day.
Positive stock markets also lifted the sentiments up.
Further, the passing of the crucial Banking Bill which will infuse more capital in the banking sector, boosted the rupee sentiment," said Abhishek Goenka, (Founder & CEO, India Forex Advisors).
In London, the euro hit a 16-month high against the yen and 7-1/2 month peak against the dollar today, helped by better-than-expected German business confidence data.
The yen also weakened broadly on expectations the Bank of Japan will unveil more monetary stimulus when its two-day policy meeting ends on Thursday.
"The INR regained most of its lost ground on exporter and foreign bank selling at higher levels as global optimism over progress in US fiscal cliff boosted the equity markets signalling active risk on sentiments," Alpari Financial Services (India) CEO Pramit Brahmbhatt said.
The premium for the forward dollar improved further on sustained paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in May edged up to 163-1/2-165-1/2 paise from yesterday's close of 163-164 paise.
Far-forward contracts maturing in November also finished higher at 312-314 paise from 309-310-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 54.7365 and for euro at 72.4775.
The rupee recovered slightly against the pound sterling to end at 88.90 from overnight close of 88.93 and also firmed up further against the Japanese yen to 64.62 per 100 yen