The rupee today dropped by 11 paise to close at 65.32 against the US currency on fresh dollar demand from importers and banks after the US data raised prospects of rate hike by the Federal Reserve by year-end that can trigger flight of foreign capital.

Sustained capital outflows along with disappointing domestic macroeconomic indicators largely kept forex market sentiment highly volatile.

The US inflation and retail data released yesterday kept the prospect of more interest rate hikes in focus, despite tax reform uncertainty, a forex dealer commented.

The negative impact of the sudden spike in oil prices on India’s balance of trade and temporary rising inflation too weighed on trade amid concerns over likely fiscal slippages.

The home currency had bounced back from one-month low against the greenback on Wednesday.

Brent crude, the international benchmark, was trading at $61.76 a barrel, down 0.18 per cent in Asian trade.

Earlier in the day, the rupee resumed lower at 65.29 from last close of 65.21 at the Interbank Foreign Exchange (forex) market underpinned by strong dollar demand.

It later touched an intra-day low of 65.39, but reversed course against its US counterpart and touched a fresh session high of 65.13 in mid-afternoon deals.

However, the recovery was shortlived as the domestic currency fell back sharply towards the tail-end trade due to intense dollar pressure to end at 65.32, revealing a loss of 11 paise.

The RBI, meanwhile, fixed the reference rate for the dollar at 65.2969 and for the euro at 76.9981.

In cross-currency trades, the rupee dropped sharply against the Pound sterling to end at 86.16 from 85.79 per pound, but recouped against the Euro to settle at 76.82 from 77.21 yesterday.

It also regained regained some lost ground against the Japanese yen to finish at 57.71 per 100 yens from 57.81 earlier.

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