Suspected market intervention by the Reserve Bank of India (RBI) predominantly stemmed the rupee's fall despite the dollar's gains in global markets.
"Even as political uncertainty continued to roil equity markets, rupee resisted weakness on the expectations of dollar selling by RBI, having tested 68," said Anand James, Chief Market Strategist at Geojit Financial Services.
The home currency opened lower at 68.14 and slipped further to hit fresh multi-month low of 68.15 in early trade before storming back.
On the energy front, crude prices retreated, weighed down by ample supplies despite ongoing output cuts by producer cartel OPEC and looming US sanctions against major crude exporter Iran. The Brent crude, an international benchmark, was trading at USD 77.73 a barrel in early Asian trade.
The pullback is viewed as nothing more than a healthy correction at this stage and banks stepped up greenback sales, likely on instruction of the Reserve Bank of India at around 68.15 levels which supported the recovery, a forex dealer commented.
The rupee hit a fresh intra-day high of 67.75 in late afternoon deals before concluding at 67.80, showing a smart gain of 27 paise, or 0.40 per cent.
The Indian rupee had plunged to a 16-month low of 68.07 yesterday due to a combination of macro worries against the backdrop of surging global crude prices and consistent outflow of foreign funds along with uncertainty over government formation in Karnataka.
The RBI, meanwhile, fixed the reference rate for the dollar at 67.8276 and for the euro at 80.2943.
Meanwhile, the yield on the benchmark 10-year government bond maturing in 2028 held steady at 7.90 per cent.
In the meantime, domestic bourses succumbed to heavy selling as wary investors booked profits amid uncertainty over government formation in Karnataka and sustained unwinding by foreign investors.
The dollar index, which measures the greenback's value against a basket of six major currencies was higher at 93.625 , the highest since December 19.
In the cross currency trade, the rupee bounced back against the pound sterling to end at 91.41 per pound from 91.98 and recouped against the euro to finish at 79.85 as compared to 80.90 yesterday.
The local unit also regained some lost ground against the Japanese Yen to settle at 61.55 per 100 yens from 61.93 earlier.
Elsewhere, the euro plunged to fresh 2018 low against the greenback as selling intensified on growing Italian political uncertainty after two Italian populist parties that are expected to lead the next government have asked for more time to reach a coalition agreement.
While, the British pound extended losses as the US Dollar gained strength across the board.
In forward market today, premium for dollar declined due to sustained receiving from exporters.
The benchmark six-month forward premium payable in September softened to 95-96.50 paise from 96.50-98.50 paise and the far-forward February 2019 contract edged lower to 229-230 paise from 232.25-234.25 paise previously.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)