In sync with the stock market, rupee today soared by 30 paise to close at two-week high levels of 55.36 against the US dollar on the back of capital inflows after European Central Bank's announcement to buy bonds.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed higher at 55.54 a dollar from overnight close of 55.66 and immediately touched a low of 55.63.
Fund flows worth Rs 500 crore in stocks and sustained dollar selling by exporters turned the sentiment in favour of rupee and it bounced back to remain in positive terrain throughout the day.
It touched a high of 55.35 before concluding at 55.36, a rise of 30 paise or 0.54 per cent. The rupee also tracked gains in Pound sterling which today hit 3-1/2-month high against the US dollar.
Yesterday, rupee had risen by 25 paise or 0.45 per cent ahead of ECB's meeting in Frankfurt where it announced a potentially unlimited bond buying plan that soothed frail nerves of investors who feared a collapse of Euro.
The dollar index, consisting of six major global units, however was down by 0.31 per cent today while New York crude oil was quoting above USD 96 a barrel in Europe.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said,"The rupee extended the gains on liquidity enriched global markets which pushed the dollar index below the 81 levels hitting towards the multi month low. After the ECB's new plan, global markets are running high on the hopes of a positive Non Farm Payrolls numbers from US."
The market euphoria, however, is expected to calm down soon and the USD/Rupee is likely to be more dependent on domestic cues, said Indranil Pan, Chief Economist, Kotak Mahindra Bank.
"The rupee was seen gaining after breaching the mark of 56 levels yesterday. Tracking sharp gains in the euro and falling US dollar, rupee closed on a positive note today," Abhishek Goenka, Founder and CEO, India Forex Advisors said.
The euro is trading at over three-month high against the dollar as the bond buying program announced by the ECB is likely reduce risk of currency break up and save the Euro, he added.
The premium for the forward dollar continued to rule steady. The benchmark six-month forward dollar premium payable in February ended stable at 176-178 paise.
The premium for far-forward contracts maturing in August edged up to 332-333 paise from overnight close of 331-333 paise.
The RBI has fixed the reference rate for