Tracking a steep rise in local stocks, the rupee today sharply appreciated by 61 paise, its biggest gain in two months, to end at 54.84 helped by capital inflows worth nearly USD 300 million and sustained dollar sales by exporters.
Weak dollar overseas and rising hopes of government being able to push through reforms helped rupee rise, said dealers.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 55.55 a dollar from Tuesday's close of 55.45 and immediately touched a low of 55.61 on early hesitance in stocks.
However, later it bounced back to a high of 54.76 before settling at nearly two-week high of 54.84 -- a rise of 61 paise or 1.10 per cent. Previously, it had finished at 54.70 on November 15, 2012.
The 61 paise gain today is the highest single-day gain after the currency registered a rise of 93 paise or 1.71 per cent against the US dollar on September 21, 2012.
"Inflows from telecom sector, sentiment booster from the global markets and the expected positive developments on the FDI front helped rupee soar," said Ashtosh Raina, Head ¿ Forex Trading, HDFC Bank.
The logjam in Parliament over FDI in retail ended today with a discussion on the issue allowed with voting.
FIIs pumped in around USD 300 million (or Rs 1,580 crore) in Indian stocks, as per provisional data with bourses.
The dollar index was down by 0.22 per cent against a basket of six major currencies as investors yesterday heard optimism from Washington about budget talks that could allow
the US economy to avert tax hikes and spending cuts.
"The very important India GDP figures for July-September 2012 period will come out tomorrow. Weaker data would hamper the positive sentiments build on the hopes of new reforms," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Meanwhile, the Indian benchmark sensex today zoomed by 328.83 points or 1.75 per cent to end at a 19-month high of 19,170.91 after Goldman Sachs upgraded its recommendation on India to overweight from market-weight.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The rupee appreciated sharply tracking easing of political logjam and positive global market cues supported by the rising optimism that the US senate and Whitehouse will come up with budget deal avoiding the fiscal cliff.
"The Euro and GBP strengthened against dollar on risk on sentiments in global markets."
The premium for the forward dollar ended narrowly mixed.
The benchmark six-month forward dollar premium payable in May eased to 164-166 paise from last close of 165-167 paise.
However, Far-forward contracts maturing in November edged up to 308-310 paise from 307-309 paise.
The RBI has fixed the reference rate for the US dollar at 55.2020 and for euro at 71.4700.
The rupee shot up further against the pound sterling to 87.85 from previous close of 88.83 and also hardened against the euro to 71.24 from 71.78.
It remained strong against the Japanese yen to end at 66.81 per 100 yen from Tuesday's close of 67.58.