At the interbank foreign exchange, the rupee opened at 79.67 against the US dollar and lost further ground to 79.71, registering a decline of 9 paise over the last close.
Spot gold was flat at $1,787.57 per ounce, as of 0120 GMT. However, bullion has gained 0.7% so far this week.
The dollar index remained on the back foot in early European trading hours, slipping 0.2% to 105.010, after recording its biggest daily fall in five months, of 1%, the previous day.
Forex traders said sideways USD/INR trades are likely ahead of crucial US inflation data.
However, persistent foreign fund inflows into the capital market restricted the rupee's fall, forex traders said.
Markets quickly moved to price around a 70% chance the Federal Reserve will lift rates by 75 basis points in September, sending two-year yields up 20 basis points on Friday and further inverting the curve.
The dollar index, which remains below its mid-July high, was last up 0.9% at 106.63. It was up about 0.2% just before the report.
At the interbank foreign exchange, the rupee opened at 79.15 against the American dollar, then touched 78.94, registering a gain of 46 paise over the last close.
At the interbank foreign exchange market, the local currency opened at 79.21 and dropped to an intra-day low of 79.85. It clawed back some lost ground to finally end at 79.40, down 25 paise over its previous close of 79.15.
At the interbank foreign exchange, the rupee opened at 79.21 against the US dollar, then fell to 79.51, registering a decline of 36 paise over the last close.
The dollar hovered near its highest this week after Federal Reserve officials continued to stress that policy tightening is far from over. However, Treasury yields remained down from two-week highs as investors stayed sidelined ahead of employment data this week that will guide the path of interest rates.
After a month of trading near a nadir of 80.065 per dollar, the currency strengthened to a one-month high of 78.490 on Tuesday, providing relief for the Reserve Bank of India, which has been burning through foreign currency reserves defending 80 per dollar.
The partially convertible rupee was trading at 79.04 per dollar by 0800 GMT, compared to its close of 78.7125 on Tuesday.
At the interbank foreign exchange, the rupee opened at 78.70 against the US dollar, then fell to 78.80 against the greenback, registering a decline of 27 paise over the last close.
Spot gold was up 0.4% at $1,766.59 per ounce, as of 0309 GMT. On Tuesday, bullion rose to a near one-month high of $1,787.79 before closing down 0.6% on the day.
The greenback continued its rise versus the safe-haven yen, extending its best gain for six weeks, as U.S. Treasury yields also rebounded after House Speaker Nancy Pelosi's arrival in Taiwan was met with a strong, but not off-the-scale response by China.
The INR rose to over a one-month high, appreciating more than Rs 1.25/USD in three sessions. The rupee is poised for its biggest single-day gain over the past 16-months
There were also jitters about an escalation in Sino-U.S. tension with U.S. House of Representatives Speaker Nancy Pelosi set to begin a visit to Taiwan against the objections of China, which regards the self-governed island as a breakaway province.
Spot gold was up 0.4% at $1,778.69 per ounce, as of 0044 GMT, its highest since July 5.
The US dollar index was volatile after data showed US manufacturing activity slowed less than expected in July. But a key report for investors this week will be the US jobs report on Friday.
Spot gold was down 0.3% at $1,760.53 per ounce, as of 0533 GMT. Bullion hovered near its highest level since July 6 at $1,767.79 scaled on Friday.
Forex traders said the rupee opened stronger as the dollar continued to fall on account of a less aggressive US Fed and falling crude oil prices.
The partially convertible rupee was trading around 79.15 per dollar in early morning trade, its strongest since July 7, compared to a close of 79.25 on Friday.
"Even though the Indian rupee has been declining against the dollar, it doesn't mean we are becoming poorer. We are growing faster; our income levels have been rising and our purchasing power has been increasing."
At the interbank foreign exchange, the rupee opened sharply up at 79.55 against the US dollar, then gained further momentum to quote 79.39 in early deals, registering a gain of 30 paise over the last close. In the previous session, the rupee had settled at 79.69 against the American currency.