Sustained foreign fund inflows and easing crude oil prices cushioned the Rupee fall.
Mumbai: The rupee weakened marginally by 2 paise to close at 68.88 against the US dollar Wednesday amid strengthening of the American currency and robust selling in domestic equities.
Forex traders said increased demand for the US currency from importers weighed on the rupee. However, sustained foreign fund inflows and easing crude oil prices cushioned the fall.
At the Interbank Foreign Exchange (forex) market, the domestic currency opened lower at 68.98 a dollar but soon pared some losses. It finally settled at 68.88 per dollar, down 2 paise over its previous close.
On Tuesday, the rupee had appreciated by 10 paise to 68.86 following a robust response to RBI's maiden rupee-dollar swap auction.
Under the rupee-dollar swap auction conducted Tuesday, the Reserve Bank received bids for USD 16.31 billion, against the notified amount of USD 5 billion.
"The Reserve Bank of India (RBI) received an overwhelming response to its dollar swap window on Tuesday, establishing the instrument as a credible liquidity tool and paving the way for more such auctions in the coming months.
"Global yields have declined in recent weeks, dragged down by the US Federal Reserve's recent dovish pivot. This fall in yields reflects moderating growth expectations in the developed markets, and likely dovish-for-longer central bank policies.
"The dollar is higher against most of its peers today in Europe as a steady drumbeat of gloomy news about the economic outlook keeps a firm cap on risk appetite. US housing and consumer confidence data both fell short of expectations," said V K Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.
Brent crude futures, the global oil benchmark, slipped 0.12 per cent to USD 67.89 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.04 per cent to 96.77.
Foreign institutional investors (FIIs) remained net buyers in the capital markets, putting in Rs 1,481.11 crore Wednesday, as per provisional data.
Meanwhile, the 30-share BSE Sensex settled 100.53 points, or 0.26 per cent lower at 38,132.88, while the broader NSE Nifty slipped 38.20 points, or 0.33 per cent, to 11,445.05.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee against the dollar at 68.9030 and against euro at 77.6041. The reference rate for the rupee against the British pound was fixed at 90.8753 and against 100 Japanese yen at 62.33.