Tracking weak stock markets, the rupee on Monday plunged by 65 paise to 55.97, its lowest closing in over three weeks, against dollar amid fresh Eurozone worries and month-end US currency demand from oil firms.

At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced sharply lower at 55.70 a dollar from last weekend’s close of 55.32. It scripted a turnaround by going up to the day’s high of 55.61 but the gains were temporary.

With euro trading at two-year lows on fresh concerns of Spain’s borrowing costs, investors started backing the US dollar, forcing the rupee to fall sharply to a low of 55.98.

It finally ended at 55.97, a level not seen since June 28.

By losing 1.17 per cent on Monday, the currency has lost over 1.5 per cent in the last two sessions as it had shed 20 paise or 0.36 per cent on Friday.

Forex dealers said month-end dollar demand from importers, mainly oil refiners, as Brent crude dipped to USD 103.85 a barrel, weighed on the rupee. Continued inflows (Rs. 109.17 crore) from FIIs in stocks could not stem its fall on Monday.

“The dollar index edged for new highs as the global investors made run up looking for safe heaven avenues. The rising short term debt costs of Spain and also the sovereign bailout from its region has weighed on global markets pushing Euro to over two-year low,” said Pramit Brahmbhatt, CEO, Alpari Financial Services.

The dollar index was up by nearly 0.2 per cent against a basket of six major currencies as Euro dropped to multi-year lows against major currencies including the US currency and Japanese yen.

Meanwhile, the Indian stock market benchmark Sensex on Monday plunged by over 281 points or 1.64 per cent also on renewed European debt worries.

Experts said the rupee’s move towards 56-level was on expected lines.

“The international factors have contributed to the weakness in the local currency. The dollar index above 83.60 levels and US treasury at record low of 1.40 per cent clearly reflects the sentiment of the global markets drifted by risk aversion,” said Abhishek Goenka, Founder & CEO, India Forex Advisors.

Traders said if hopes of reforms were not met within next two weeks, FII funds may start flowing out and that could put pressure on the rupee to revisit its lifetime low of 57.32.

The premium for the forward dollar eased further on sustained receivings by exporters.

The benchmark six-month forward dollar premium payable in December softened to 157-1/2-159-1/2 paise from last Friday’s close of 158-160 paise.

The premium for far-forward contracts maturing in June also moved down to 302-304 paise from 304-306 paise.

The RBI fixed the reference rate for the US dollar at 55.7643 and for Euro at 67.4328.

The rupee remained weak against the pound sterling to end at 86.94 paise from last weekend’s close of 86.79. It also tumbled further against the Japanese yen to 71.56 per 100 yen from last close of 70.42.

However, the rupee fell back to 67.84 per Euro from previous close of 67.57

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