The rupee today surged to a three-week high of 68.31 before closing marginally up by 4 paise at 68.53 against the US currency mirroring late losses in stock markets and capital outflows.
A strong dollar in global markets on hopes that the greenback would gain from trade dispute triggered dollar buying by banks and importers in afternoon trade.
Unabated capital outflows in the face of an increase in long-term US interest rates also weighed on the trade.
According to provisional exchange data, foreign investors pulled out more than Rs 1,100 crore from stocks markets.
The Indian unit opened strong at 68.36 and hit a fresh three-week high of 68.31 in mid-morning deals as crude prices fell further and stock markets traded at record high levels.
Late selling in stock markets and capital outflows weakened the rupee sentiment, pulling down the lo cal currency to a day's low of 68.55 per dollar.
The rupee, however, managed to end at 68.53, up by just 4 paise or close to 0.06 per cent. For the week, rupee recovered by a smart 34 paise after two-straight weeks of downtrend.
Data released by the CSO showed retail inflation spiked to a five-month high of 5 per cent in June, while industrial production growth slipped to a seven-month low of 3.2 per cent in May, bolstering prospects of another rate hike by the RBI in its upcoming monetary policy review.
Meanwhile, local bourses snapped their four-day rally as investors engaged in a little profit taking ahead of the weekend.
The domestic bond market also witnessed fresh selling after two-day rally and the 10-year benchmark yield ended higher at 7.79 per cent.
On the energy front, crude prices fell more than 1 per cent, set for a second straight week of decline as Libyan ports reopen and amid hopes that Iran will still export some crude despite US sanctions.
The benchmark Brent was trading 87 cents down at USD 73.58 per barrel. Oil – West Texas Intermediate was down 33 cents at USD 70 per barrel
Globally, the US dollar was firm at six-month high against the safe haven Japanese yen, showing rick appetite by traders despite trade war worries. The greenback also rose against the British pound after the US president Donald Trump criticised the Brexit strategy of the UK Prime Minister Theresa May.
The dollar index, which measures the greenback's value against basket of six major currencies, was up 0.20 per cent at 95.01.
The local unit also hardened against the Japanse yen to settle at 60.86 per 100 yens from 60.92 yesterday.
The FBIL fixed the reference rate for USD dollar at 68.4094, for euro at 79.7617 and for pound at 90.0710. It set the rate gainst the Japanese yen at 60.77 per 100 yens.
In forward market today, premium for dollar slipped further due to mild receiving from exporters.
The benchmark six-month forward premium payable in November fell eased to 109.50-111.50 paise from 111-113 paise and the far-forward May 2019 contract also softened to 256.75-258.75 paise from 257.75-259.75 paise.