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The rupee started Friday's session on a firm note at 72.68 and rose as much as 55 paise against the American currency at the day's highest level, before settling at 72.50 for the day.
"Softening crude oil prices and the results of US-mid-term polls lifted the rupee," said VK Sharma, head PCG and capital markets group, HDFC Securities.
Crude oil prices slipped below the $70 a barrel mark for the first time since early April, as global supply increased and investors worried about the impact on fuel demand of lower economic growth and trade disputes.
Brent - the global benchmark for crude oil - has fallen more than 18 per cent since registering four-year highs at the beginning of October.
The dollar firmed towards a 16-month high underpinned by a robust US economy and rising interest rate environment.
“The dollar continued to strengthen against its major counterparts after hawkish FOMC (Federal Open Market Committee) statements on the US economy,” said IFA Global, a forex advisory firm.
The US central bank held interest rates steady in its policy statement on Thursday, having hiked rates three times this year. The Fed, however, remained on track to keep gradually tightening borrowing costs, even one in December because of US economic strength, rising inflation and solid jobs growth.
The dollar had weakened after US midterm election results showed Democrats wresting control of the US House of Representatives from the ruling Republican party.
Meanwhile, domestic equity markets finished the last session of the holiday-shortened week on Friday on a negative note amid weakness in Asian peers. The Sensex declined 79 points - or 0.2 per cent - to end at 35,158, while the Nifty settled at 10,585, down 13 points from the previous close.
The rupee had rebounded by 12 paise to end at 73 against the US currency on Tuesday. It is still down 13.5 per cent against the greenback so far this year.
(With agency inputs)