The rupee today rose by 33 paise to touch a three-week high against the dollar at 54.35 on firm foreign fund inflows, after US lawmakers passed a bill which has averted the 'fiscal cliff'.
Forex dealers said sustained selling of the American currency by exporters and bullish local equity markets buoyed the rupee sentiment.
The local currency started the day higher at 54.42 at the Interbank Foreign Exchange (Forex) market. It hovered in a range of 54.27-54.54 before settling at 54.35, a gain of 33 paise, or 0.60 per cent, against the dollar.
Yesterday, rupee had gained 31 paise to hit a two-week high of 54.68 against the US currency.
"The US averted the fiscal cliff after the House of Representatives passed a legislation, which increased foreign fund inflows into emerging economies, including India and it has boosted the local equities. This has in turn buoyed rupee amid sustained offloading of dollar," IDBI Bank Head (Treasury) N S Venkatesh said.
The US House of Representatives late Tuesday night passed the "fiscal cliff" bill, ending a dramatic New Year's Day showdown over income taxes and deep federal spending cuts.
The bill, which was passed by the Senate (89 to 8 votes) in the wee hours of the New Year, would now go to the White House for US President Barack Obama to sign into law, which would end months of anxious moments with regard to fiscal cliff.
Foreign institutional investors pumped in nearly USD 204 million (Rs 1,107.67 crore) into the stock markets today, according to provisional BSE data.
Meanwhile, the BSE benchmark Sensex also shot up by 133.43 points to hit a two-year high of at 19,714.24, while NSE's Nifty breached the 6,000-mark.
"The rupee gained sharply tracking global cues after the US house passed the budget deal averting a fiscal cliff. The efforts of the government to contain the twin deficit also aided rupee to climb to over three-week high," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
The premium for the forward dollar moved down further on sustained receipts from exporters.
The benchmark six-month forward dollar premium payable in June eased further to 168-170 paise from Tuesday's close of 170-1/2-172 paise.
Far-forward contracts maturing in December also declined to 308-310 paise from 310-311-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 54.3890 and for euro at 72.1900.
The rupee recovered against the pound sterling to 88.65 from previous close of 89.04 while improved further to 71.99 per