The rupee depreciated 12 paise to 83.02 (provisional) against the US dollar on Tuesday, weighed down by a heavy selloff in domestic equities and persistent foreign capital outflows.
Besides, a surging greenback against major crosses overseas also pulled down the other local currency, forex traders said.
At the interbank foreign exchange market, the local unit opened at 82.94 and touched the intra-day low of 83.05 and a high of 82.93. It finally settled at 83.02 (provisional) against the dollar, registering a loss of 12 paise from its previous close.
On Monday, the rupee dropped 4 paise to settle at 82.90 against the US dollar.
"The rupee's...decline is primarily driven by a significant rise in the dollar index, which surged by USD 0.70 to USD 103.70. This surge stems from a shift in expectations regarding the US Federal Reserve's interest rate policy.
"Markets now anticipate that the Fed will hold off on interest rate cuts in March, potentially delaying them until June or July. This shift in sentiment has strengthened the dollar across the board, leading to a general weakening of other currencies, including the rupee," Jateen Trivedi, VP Research Analyst, LKP Securities, said.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.41 per cent higher at 103.66.
Brent crude futures, the global oil benchmark, declined 0.29 per cent to USD 86.64 per barrel.
On the domestic equity market front, the 30-share BSE Sensex benchmark nosedived 736.37 points or 1.01 per cent to settle at 72,012.05. The broader Nifty declined 238.25 points or 1.08 per cent to close at 21,817.45.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday as they offloaded shares worth Rs 2,051.09 crore, according to exchange data. "Looking ahead, the ongoing two-day policy review by the Fed will be crucial. The tone of the Fed's statements will likely impact the dollar's trajectory. A hawkish stance could further bolster the dollar, potentially pushing it towards $104.50 and weakening the rupee to around Rs 83.20," Trivedi said.
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