Mumbai: Tracking gains in stock market, the rupee Wednesday firmed up 13 paise to close at 55.21 on persistent selling of dollars by banks after a German court's verdict on a new EU bailout fund softened the global demand for the American currency.
Sustained capital inflows of over Rs 450 crore from foreign funds into equity market also supported the rupee's gain against the dollar, forex dealers said.
The rupee resumed higher at 55.23 per dollar compared to its the last closing level of 55.34 per dollar at the Interbank Foreign Exchange (Forex) Market.
The rupee gains became pronounced just before mid-day in Europe as the euro rose against the dollar after German judges removed a major obstacle to the region's new bailout fund, European Stability Mechanism (ESM). The rupee soon after hit 55.14, its best in three weeks.
Dollar wilted further as investors focussed on US Fed's next meeting amid rising expectations of further stimulus.
But mixed UK employment data dented demand and rupee fell to 55.37 per dollar, before ending better at 55.21 -- a rise of 13 paise, or 0.23 percent.
"Rupee got a lot of support on the back of positive news flow from Europe in the form of German court's consent to bailout funds. This prompted Euro to go beyond 1.29 level, which pushed the domestic currency," Hemal Doshi, Currency Strategist, Geojit Comtrade.
The announcement after the US Fed meeting on Thursday would be keenly watched by the investors across the global markets, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Meanwhile, the Indian stock market benchmark Sensex ended higher by 147 points, or 0.82 percent, to end above 18,000 points -- the first time since February-end.
Talking about rupee's gains, a treasury official of a public sector bank said: "The Germany court verdict has pushed up rupee today due to positive movement in Euro against dollar. However, going ahead, redemption due next month is very high, which is likely to weigh on the rupee. So, unless the government is going to come up with measures like further ECB liberalisation, rupee may weaken."
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, the rupee extended gains after the verdict which allowed Germany to participate in ESM with a caveat restricting the participation to 190 billion euro and shall need approval from the country's Parliament to extend its participation.
The premium for the forward dollar declined further on sustained receipts by exporters. The benchmark six-month forward dollar premium payable in February ended lower at 164-1/2-166-1/2 paise from overnight close of 171-173 paise.
The premium for far-forward contracts maturing in August also dropped to 315-1/2-317-1/2 paise from 326-328 paise.
The RBI has fixed the reference rate for the US dollar at 55.2605 and for euro at 71.1310.
The rupee remained weak against the pound sterling to 88.86 from yesterday's close of 88.66 and also declined against the euro to 71.28 from 70.71 previously.
The rupee, however, recovered against the Japanese yen to end at 70.92 per 100 yen from last close of 70.96.