Mumbai: The rupee on Wednesday staged a smart comeback after two straight days of losses and ended 11 paise higher at 67.43 against the US dollar on positive sentiment triggered by lower inflation and fresh selling of the American currency by exporters.
However, prospects of the Federal Reserve raising interest rates after its two-day meeting concludes on Wednesday added some volatility in early trade.
The US central bank is widely expected to bring in the first rate hike since December 2015.
Highly positive economic data lifted the overall forex market sentiment after retail inflation fell to a two-year low of 3.63 percent in November, while wholesale inflation eased for the third straight month to 3.15 percent.
At the Interbank Foreign Exchange (forex) market, the home currency resumed virtually stable at 67.54 and traded in a narrow range throughout the day.
But towards the fag-end trade, the home unit witnessed a strong recovery trend and closed at the day's highest level of 67.43, showing a gain of 11 paise, or 0.16 percent.
It briefly touched a low of 67.54.
In worldwide trade, the greenback turned weaker ahead of the Federal Reserve's monetary policy announcement later in the day.
The US dollar index was quoted modestly weak at 100.88 in late afternoon trade.
Meanwhile, the RBI today fixed the reference rate for the dollar at 67.5604 and euro at 71.9180.
In cross-currency trades, the rupee also rebounded against the pound sterling to finish at 85.27 from 85.78, but drifted further against the euro to settle at 71.70 from 71.65 yesterday.
The local unit, too retreated against the Japanese yen to conclude at 58.66 as compared to 58.52 per 100 yens earlier.
In the forward market, premium for dollar showed a steady to firm trend.
The benchmark six-month premium for May was quoted at 131-132 paise from 130-132 paise, while far-forward November 2017 contract moved up to 275-277 paise from 274-275.5 paise yesterday.
Meanwhile, equities succumbed to fresh bouts of profit taking after sharp overnight relief rally as sentiment turned shaky ahead of the much awaited US Fed's decision amid subdued Asian cues despite both retail and wholesale inflation falling.
The benchmark Sensex dropped over 94 points to end at 26,602.84, while broader Nifty shed 39.35 points to 8,182.45.
On the global commodity front, crude prices drifted further after making a failed attempt to run higher as gains fizzled out after API reported that inventories added 4.68 million barrels last week.