The rupee declined by 4 paise to settle at 76.61 against the US currency on Thursday due to a stronger dollar which surged to five-year high levels against global peers.
Gains in domestic equities, FPI inflows and a correction in crude oil prices, however, helped the rupee restrict losses.
At the interbank forex market, the rupee opened lower at 76.60 against the greenback and later moved in a range of 76.43 to 76.71 in the day trade.
It finally closed at 76.61, registering a fall of 4 paise over its previous close of 76.57. On Wednesday, the rupee had settled almost flat at 76.57 against the US dollar.
''Rupee traded in a range of 76.45-76.70 as commodity prices witnessed selloff amid rise in dollar index price,'' Jateen Trivedi, Senior Research Analyst at LKP Securities, said.
''Going ahead FED's hawkish statement will be acting as weak trigger for rupee and global unsettle markets along with the dollar index rise shall keep facing resistance. The rupee has strong resistance of 20dma hence trend shall remain weak for rupee on any rises.''
The Emerging Markets and Asian peers currencies mostly eased against the dollar ahead of U.S. GDP and PCE price index data, Sriram Iyer, Senior Research Analyst at Reliance Securities, said The US dollar soared to a five-year high against a basket of global currencies amid rush to safe-haven assets.
The dollar index traded at 10.3.4 while the greenback surged past the 130 level against the Japanese yen as Bank of Japan continued with its accommodative stance.
Analysts said the dollar index at 103 indicates flight to safety and this implies that FPIs will continue to sell in this market.
FPIs turned net investors by buying shares worth Rs 743.22 crore on Thursday, according to provisional exchange data.
Additionally, exporter dollar sales also supported rupee sentiments, Iyer said.
Indian bond yields ended higher as traders added short positions ahead of a debt sale on Friday. The benchmark 6.54% bond ended at 7.16 per cent against 7.08 per cent on Wednesday.
''Major crosses Euro and Pound continued to remain under pressure against the US dollar. The focus will be on the advance GDP number from the US and weaker-than-estimated data could keep gains capped for the dollar,'' said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services said.
On the domestic equity market front, the BSE Sensex ended 776.72 points or 1.23 per cent higher at 57,521.06, while the broader NSE Nifty jumped 206.65 points or 1.21 per cent to 17,245.05.
Brent crude futures, the global oil benchmark, rose 0.23 per cent to USD 105.56 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, surged 0.44 per cent to 103.41.
(With inputs from PTI)