Mumbai: The rupee surged to its highest level in five weeks to end at 65.58 by gaining 38 paise against the US currency as exporters and banks stepped up dollar sales amid aggressive policy measures from the RBI.
Strong rally in equity markets and softening dollar sentiment overseas too aided the home currency.
The home currency has now appreciated by 58 paise in three straight days despite consistent unwinding by foreign investors from equities and debt markets.
Taking comfort from US Fed rate hike delay and easing inflationary pressure, the Reserve Bank slashed the repo rate by 50 basis points to 6.75 percent from 7.25 percent and announced a roadmap to increase foreign investment in sovereign securities.
This apart, the Reserve Bank also announced a medium-term framework that will increase government bond limits for foreign portfolio investment (FPI) limit in a phased manner.
The domestic currency resumed firmly higher at 65.87 per dollar compared to overnight closing level of 65.96 at the Interbank Foreign Exchange market on persistent selling of dollars by banks and exporters.
Riding higher on strong overall bullish sentiment, rupee strengthened further to close at day's highest level of 65.58, showing a smart gain of 38 paise, or 0.58 percent - the level not seen since August 20, this year.
In overseas market, dollar edged higher against the other major currencies on Wednesday ahead of Federal Reserve Chair Janet Yellen speech later in the day.
The US dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was up by 0.43 percent at 96.46.
Foreign portfolio investors (FPIs) remained net sellers in the cash segment and offloaded shares worth Rs 1,112.59 crore yesterday, according to provisional data released by exchanges.
In forward market today, premium for dollar continued to fall on sustained receivings from exporters.
The benchmark six-month premium payable in February slipped to 171-172 paise from 175-177 paise and forward August 2016 also declined to 378-380 paise from 386.5-388.5 paise.
The RBI fixed the reference rate for the dollar at 65.74 and for the euro at 73.79.
The rupee hardened against the pound sterling to finish at 99.58 from Tuesday's close of 100.00 and recovered to end at 73.51 compared to 74.03 earlier.
It also recouped against the Japanese currency to settle at 54.52 per 100 yen from 55.03 yesterday.