The rupee recovered from previous day's steep fall and traded 3 paise higher at 83.58 against the US dollar in early trade on Friday on the back of sustained inflow of foreign capital and strong domestic equity market sentiment.
Forex traders said the local unit found support from retreating American currency and easing crude oil prices overseas.
At the interbank foreign exchange, the local unit opened at 83.60 and gained further to 83.58 against the greenback, registering a rise of 3 paise from its previous close.
On Thursday, the rupee had plunged 17 paise to hit its over two-month low level of 83.61 against the dollar. The domestic currency recorded its previous lowest closing level of 83.61 on April 16 this year.
Anand James, Chief Market Strategist, Geojit Financial Services, said the rupee's sharp decline was "partly triggered by significant block deals worth Rs 23,000 crore" a day earlier when Vodafone Idea also sold its 18 per cent stake in Indus Towers for Rs 15,300 crore.
At the same time, the dollar was "buoyed by wider interest-rate differentials" after major economies began cutting interest rates ahead of the US Federal Reserve, while "parts of Europe faced political turmoil".
"The dollar's ascent was also driven by a decline in the pound after the Bank of England decided not to cut interest rates," James said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.01 per cent at 105.21.
Brent crude futures, the global oil benchmark, fell 0.13 per cent to USD 85.60 per barrel.
In the domestic equity market, the 30-share BSE Sensex climbed 127.75 points, or 0.16 per cent, to 77,606.68. The broader NSE Nifty rose 37.65 points, or 0.16 per cent, to 23,604.65. Both the indices closed the previous session at their highest levels.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Thursday as they purchased shares worth Rs 415.30 crore, according to exchange data.
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