The rupee hit a one-month high on Tuesday, trading below 79 per dollar on a reversal in capital inflows in recent days and as the greenback stumbled again on easing bets of aggressive Federal Reserve monetary action amid recession fears kept the dollar under pressure.
PTI reported that the rupee gained 12 paise to 78.94 against the US dollar in early trade.
Bloomberg showed the Indian currency was last changing hands at 78.9375 per dollar, compared to Monday's close of 79.0262.
At the interbank foreign exchange, the rupee opened sharply up at 78.96 and gained further ground to quote at 78.94 in initial deals, registering a rise of 12 paise over the last close 79.06 against the US dollar.
"Diminishing odds for more aggressive Fed rate hikes continue to weigh on the dollar," Kunal Sodhani, assistant vice president at Global Trading Center for FX and Rates Treasury at Shinhan Bank, told Reuters.
"Brent crude prices heading below $100 per barrel, along with the comeback of foreign institutional investor equity inflows, are assisting the rupee."
Foreign institutional investors were net buyers in the capital market on Monday, purchasing Indian shares worth Rs 2,320.61 crore, as per the latest exchange data.
The dollar continued its decline on Tuesday, falling to its lowest in two months against the recovering Japanese yen and losing ground on other peers, as investors continued to position for a less aggressive pace of Federal Reserve interest rate hikes.
The greenback fell as low as 130.595 yen in early trading, its lowest since June 6, and was last down 0.55 per cent, leaving it down 4 per cent in the past four sessions.
The greenback was also weaker generally, with sterling at $1.2256, just off a five-week peak hit overnight, and the euro was also on the front foot at $1.0294.
This sent the dollar index, which measures the greenback against six peers, to 105.03 in early trade, a one-month low.
Forex traders said, softening crude oil prices strengthened domestic forex market sentiment as well.
Oil prices edged lower on Tuesday, continuing a decline in the previous session, as investors worried about global crude demand following weak manufacturing data in several countries.
"Data releases over the past 24 hours have provided further evidence the global economy is slowing," National Australia Bank strategist Rodrigo Catril wrote in a note to clients, as reported by Reuters.
"Signs of a slowdown are building" in the United States, while "China's reopening activity burst is over," he said.
Indian equity benchmarks opened in the red on Tuesday, snapping a four-day winning streak on worries about the risk of global recession after poor economic data worldwide pushed Wall Street lower, and other Asian stocks continued that weak trend.