The rupee rose significantly on Friday, marking the second straight day of gains after hitting record lows repeatedly this week, as the Reserve bank of India hiked interest rates on expected lines and as currency markets calmed, with the dollar pulling back from multi-year highs.
PTI reported that the rupee gained 38 paise to provisionally close at 81.35 against the US dollar.
Bloomberg showed the domestic currency was changing hands at 81.40 per dollar, well below its record low of 81.95, after opening at 81.57 and compared to its previous close of 81.86 against the greenback.
The trading range of 81.1525 to 81.6950 showed the rupee was well off its record low levels, ending a tumultuous week on a positive note, as reflected by a surge in domestic equity benchmarks.
The RBI hiked its key lending rate by 0.5 per cent to a three-year high of 5.90 per cent and reassured of policy action to do whatever it takes to tame elevated inflation, even as it lowered growth forecasts for this year.
RBI Governor Shaktikanta Das said the rupee's decline was orderly and that the domestic currency while having fallen, has held its ground better than major peers, driven largely by a surging dollar, which is up more than 16 per cent for the year.
Following a week of market turbulence, recession worries drained stocks, and the dollar surge rocked currency markets; currency markets calmed on Friday, with the greenback flat after hitting a 20-year high on Wednesday.
After efforts by the Bank of England (BoE) helped calm markets, the British pound, which had fallen to a record low of $1.0350 on Monday, due to a combination of dollar strength and the government's plans for tax cuts financed by borrowing, was up 0.6 per cent on the day at $1.119.
Still, it was on track for its worst quarter versus the dollar since 2008.
"We are closer to bottoms, and the sentiment is so negative the downside is becoming more limited," Esty Dwek, chief investment officer at Flowbank SA, told Bloomberg. "At some point, risk assets will move higher again."
Still, the mood remains tense as traders try to predict the next pressure points that might reverse the gains made by the BoE's massive bond market purchases over the last two days.