Robust capital inflows against the backdrop of recent policy measures adopted by the government to capitalise public sector banks, which were reeling under massive bad debt, predominantly kept forex market sentiment highly buoyant.
Foreign funds and investors turned net buyers of local equities after a long selling spell and infused a net Rs 3,582.50 crore on yesterday, as per stock exchanges' provisional data.
Domestic equities continued their record-breaking run for the second day in a row with both the Sensex and Nifty ending at a fresh lifetime high on the back of overall positive sentiment amid optimism over earnings and short-covering on expiry day.
A seemingly corrective pullback in the US Dollar probably helped as well.
Though, overall trading spotlight was focused on the ECB Governing Council decision as they near the end of their current asset purchase program, which is due to expire in December.
Banks and exporters preferred to reduce their dollar position on hopes of more foreign capital inflows in view strong equity markets, a forex dealer said.
Meanwhile, the massive Rs 2.11 lakh crore capital infusion in public sector banks may make the 3.2 per cent fiscal deficit target for 2017-18 difficult to achieve if two-thirds of the planned recapitalisation bonds are issued by the government, Fitch Ratings said today.
Maintained its bullish strength, the rupee opened higher at 64.79 from overnight close of 64.89 at the Interbank Foreign Exchange market on sustained dollar unwinding.
It gained further ground tracking sluggish dollar overseas mood and touched an intra-day high of 64.72 before ending at 64.82, showing a gain of 7 paise, or 0.11 per cent.
The home currency had gained 18 paise against the US dollar yesterday.
The RBI, meanwhile, fixed the reference rate for the dollar at 64.7888 and for the euro at 76.6063.
On the global front, the greenback took a breather after having rallied over the past week on optimism over the prospects for US tax reforms, as well as speculation that the next chair of the Federal Reserve could steer policy in a more hawkish direction.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 93.97 in early trade.
In cross-currency trades, the rupee hardened further against the pound sterling to close at 85.69 from 85.99 per pound but dropped further against the Euro to settle at 76.52 from 76.39.
The local unit also fell back after a brief rebound against the Japanese yen to finish at 57.04 per 100 yens compared to 56.88 yesterday.
Elsewhere, the euro traded at one-week high ahead of ECB monetary-policy meet outcome later in the day, which is widely expected to announce the reduction of its bond-buying stimulus.
Meanwhile, the euro staged a solid comeback amid stalled USD recovery and upbeat remarks from the UK's Brexit Secretary Davis, the GBP/USD pair attempted a sharp V shape reversal from a downward spike to 1.3180 levels.
In forward market today, the premium for dollar drifted due to good receiving from exporters.
The benchmark six-month premium payable in March dropped to 113.75-115.75 paise from 117-119 paise and the far forward September 2018 contract moved down to 253.50-255.50 paise from 257-259 paise on Wednesday.
On the International energy front, global crude prices slipped, pressured by an unexpected increase in US crude inventories, high US production and exports, but prices remained near multi-month highs as crude markets tightened.
Though, prices have been supported over the past few sessions by supply disruptions in northern Iraq and also comments from Saudi Arabia's energy minister, reiterating the kingdom's determination to end a global supply glut.
Brent crude was down 15 cents at USD 58.29 a barrel in early Asian trade, while the US light crude was 15 cents lower at USD 52.03.