The rupee closed stronger at 62.85 as US Federal Reserve nominee Lawrence Summers withdrew from the race, igniting hopes that the $85 billion fiscal stimulus might continue longer than expected.
The news of Summers withdrawing from the race led the rupee to gain to as much as 62.40 in early trade.
The Indian unit, which closed at 63.48 on Friday, opened weaker at 63.70.
The dollar index was trading in the red at 81.14 against a basket of currencies at 5.50 p.m. Indian time.
However, the rupee lost steam after data showed that wholesale price index-based inflation rose to 6.1 per cent in August from 5.79 per cent in July. This is likely to make the case difficult for a policy rate cut by the Reserve Bank of India, when it will decide on the mid-quarter monetary policy on September 20.
“The withdrawal of Summers from the race lent hopes to the market that the US Fed might delay the planned reversal of its $85 billion asset purchase programme, or at least slow it down,” a chief dealer of a public sector bank said.
The U.S. monetary policy could stay easier for longer if the other leading candidate -- Janet Yellen -- gets to head the Fed, he said.
The Federal Open Markets Committee will meet on September 17 and 18 and it is broadly expected that the incumbent Chairman, Ben Bernanke, will hint at slowing the asset purchase programme.
Intraday, the rupee moved between a high of 62.40 and 63.70. respectively.
Call rates, G-Secs
The interbank call money rates, the rates at which banks borrow from each other to meet their short-term fund requirements, opened higher at 10.45 per cent from the previous close of 10.25 per cent.
The 7.16 per cent benchmark government security, which matures in 2023, opened higher at Rs 91.85 from the previous close of Rs 91.34. Yields softened to 8.40 per cent against Friday's close of 8.48 per cent.