The rupee reversed gains from earlier in the session to fall sharply on Monday, as a warning from a Federal Reserve policymaker that it would take a string of soft inflation reports for the bank to move away from rate hikes buoyed the battered dollar.
Bloomberg quoted the rupee last at 81.26 per dollar after opening at 80.5350, compared to 80.81 it closed on Friday.
PTI reported that the rupee fell 48 paise to close provisionally at 81.26 against the US dollar.
"The Indian rupee depreciated on recovery in the US dollar and weak domestic markets. However, the rupee opened higher on upbeat macroeconomic data," said Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas.
"Overall weakness in the dollar amid rising expectations of the not-so-aggressive Federal Reserve may also support the rupee at lower levels. Sustained FII inflows may also support the rupee. However, higher crude oil prices may cap sharp upside," Mr Choudhary added.
The domestic currency traded in the 80.5125 to 81.2838 range, with the rupee pushed back beyond the 81 mark, stalling the rally from last week.
"The rupee opened at 80.51 which was the high seen for the day as oil companies, defence firms and the MSCI outflow kept the dollar well bid," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
"There are about 15 Fed speakers this week and any hawkish tone from them could change the downward direction of dollar," he added.
A cooling inflation report on Thursday pushed the dollar down almost 4 per cent for the week, its fourth biggest drop since the era of free-floating exchange rates began over 50 years ago.
However, Federal Reserve Governor Christopher Waller on Sunday said the markets were well ahead of themselves after just one inflation print.
That helped limit the dollar's sharp decline.