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The Indian rupee on Thursday edged higher by 4 paise to 71.08 against the US dollar amid weakness in the greenback in overseas markets after the US Fed kept interest rate unchanged.
Also, a massive rally in domestic equities lifted trading sentiment in forex market.
At the Interbank Foreign Exchange, the Indian currency opened significantly higher but erased the morning gains during the course of the day due to month-end dollar demand from oil importers and shed 22 paise from the day's high.
After opening on a firm note at 70.92, the rupee climbed further to a high of 70.86 following dollar selling by exporters, before finally closing at 71.08, up 4 paise.
The rupee had Wednesday ended with just 1 paisa loss at 71.12 a dollar.
While weaker American currency and heavy buying in domestic equities supported the rupee trading pattern, surging crude oil prices and a caution ahead of Friday's interim budget restricted the gains of the Indian unit.
"...Fed chairman Jerome Powell suggested the pace of rate hikes will slow," HDFC Securities Head PCG and Capital Markets Strategy V K Sharma said.
He further said the "rupee is headed for the worst performance among major Asian currencies in January as fiscal concerns weigh ahead of Friday's interim budget".
The US dollar weakened in overseas market after the Federal Reserve left the key US lending rate unchanged on Wednesday and said it would be "patient" about making any further changes.
Meanwhile, the dollar index dropped by 0.02 per cent to 95.32 against a basket of six currencies in the late afternoon trade.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.0333 and for rupee/euro at 81.6836.
The reference rate for rupee/British pound was fixed at 93.2383 and for rupee/100 Japanese yen at 65.30.
Meanwhile, brent crude, the global benchmark, was trading at 62 per barrel, up 0.57 per cent.
Foreign funds purchased shares worth Rs 3,006.41 crore from the capital markets on a net basis, while domestic institutional investors also sold shares worth Rs 1,634.32 crore Thursday, provisional data showed.
Meanwhile, market benchmark Sensex Thursday surged over 665 points or 1.87 per cent to close at 36,256.69. The broader Nifty soared 179.15 points, or 1.68 per cent, to 10,830.95.
