Extending its slide for a fifth day, the domestic currency took a hit of 32 paise to close at more than one-year low as the RBI's surprised hawkish tone kept overall sentiment bearish.
The Indian currency logged its lowest closing since March 14, 2017, when it had closed at 65.82 against the US dollar. The rupee emerged as the worst performer among the major Asian and emerging market currencies.
The rupee had fallen to a low of 65.79 in early trade but the RBI's suspected intervention helped the currency recover to a day's high of 65.59.
The pound sterling also finished higher at Rs.94.09/11 per pound at close of the forex market here.
The Indian unit was the biggest loser among Asian currencies which suffered due to a strong US dollar after the strike on Syria by the US, the UK and France.
Easing global trade war fears after US President Donald Trump hinted that military action in Syria might not be imminent along with some consolidation in global crude prices kept forex market sentiment buoyant.
Intra-day, the Indian currency fell to a fresh five-month low of 65.45 before eventually recouping all losses.
Despite a strong start, the home currency erased all its morning gains during intra-day due to renewed dollar demand from importers, but eventually managed to settled the day in positive zone.
The pound sterling also finished higher at 91.76/78 per pound against 90.96/98 earlier.
The Indian unit largely traded sideways for most part of the session, pressured by lacklustre equities and buoyant dollar overseas ahead of US job data.
Highly positive market sentiment largely dominated the forex trading from the beginning on the back of cooling of trade tensions between the US and China with global markets stabilising.
Panic dollar buying by corporates and importers along with worries over fund outflows from domestic capital market predominantly kept trading mood at extreme level despite a strong start.
A massive unwinding of dollar long positions by exporters and corporates predominantly lifted the forex sentiment.
A solid dollar rebound, supported by easing trade war fears and a goodish pick-up in the US Treasury bond yields predominantly kept forex market undertone nervous and prompted the fag-end reversal.
A spectacular relief rally in local equities further supported the forex sentiment amid extreme bearish dollar overseas cues.
Fear and panic gripped the currency market sentiment initially after US President Donald Trump decided to slap tariffs on China.
The rupee opened at 65.12 a dollar and touched a high of 65.0250 in day trade after a less hawkish Fed commentary on rate hike in 2018.
The greenback's weakness against other currencies overseas helped the domestic unit, market watchers said.
The home currency opened at 65.2150 and touched a low of 65.2450, before ending at 65.20, down 0.05 per cent from Monday's close of 65.17.
The sentiment in forex market turned weak after the country's current account deficit widened in the December quarter on the back of higher trade deficit.
The Indian currency gathered some buying interest in the wake of BJP's strong showing in the country's North East region ahead of the national election in 2019.
The rupee opened lower at 65.25 as against yesterday's close of 65.17 at the inter-bank foreign exchange here. Later, the volatile rupee touched a low of 65.25 before rebounding to 65.10 during morning deals. It was trading up at 65.12 at 1045 hrs.
The rupee opened lower at 64.83 per dollar as against yesterday's close of 64.79 at the inter-bank foreign exchange here. The domestic unit hovered between a high of 64.76 and low of 64.94 during morning deals. It was trading at 64.90 at 1030 hrs.
The rupee opened lower at 65.06 as against yesterday's close of 64.76 at the inter-bank foreign exchange here.
The rupee opened sharply lower at 64.90 per dollar against yesterday's close of 64.79 at the inter-bank foreign exchange here.