The rupee appreciated 30 paise to close at 81.63 (provisional) against the U.S. dollar on Thursday as a weak greenback in the overseas market and a rally in domestic equities boosted investor sentiments.
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Forex traders said the dollar fell in international trade post the weak U.S. data and dovish Fed minutes.
At the interbank foreign exchange market, the local unit opened at 81.72 and touched an intra-day high of 81.60 and a low of 81.77 against the greenback.
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The local unit finally settled at 81.63, registering a rise of 30 paise over its previous close.
On Wednesday, the rupee depreciated 26 paise to close at 81.93 against the U.S. currency.
"Rupee continued to trade in a narrow range and volatility remained low in the past few sessions. Euro and pound are trading higher after the Fed maintained a less hawkish stance in its meeting minutes released on Wednesday," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
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Some committee members expressed concern about risks to the financial system should the Fed continue to press forward at the same aggressive pace, Mr. Somaiya said.
He further noted that volatility for the dollar could remain low as the U.S. markets remain shut on account of the Thanksgiving day holiday.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.19% to 105.87.
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Global oil benchmark Brent crude futures declined 0.32% to $85.14 per barrel.
On the domestic equity market front, the 30-share BSE Sensex advanced 762.10 points or 1.24% to end at 62,272.68, while the broader NSE Nifty gained 216.85 points or 1.19% to 18,484.10.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Wednesday as they offloaded shares worth ₹789.86 crore, according to exchange data.