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The rupee declined by 25 paise to close at 76.42 against the US currency on Friday due to forex outflows and a stronger dollar which touched its 25-month high levels on expectations of a 50-basis point rate hike by the US Federal Reserve in May.
Losses in domestic equity markets also dented the investor sentiment, forex dealers said.
At the interbank forex market, the rupee opened sharply lower at 76.31 against the greenback and lost further ground during the session. The domestic unit witnessed an intra-day high of 76.19 and a low of 76.50.
The rupee closed at 76.42 to a dollar, down by 25 paise over its previous close of 76.17.
The rupee has weakened by 23 paise this week to Friday.
The dollar index touched its 25-month high level against a basket of world currencies on Friday before trading at 100.84 on expectations of a 50 basis point hike by the US Fed in May.
"I would say that 50 basis points will be on the table for the May meeting," Federal Reserve Chairman Jerome Powell said in an IMF panel discussion.
The rupee gave up its weekly gains after Federal Reserve Chairman Jerome Powell said that a 50 basis-point rate hike was on the table for the May meeting as the central bank aims to curb elevated inflation in the US, Emkay Global Financial Services said in a note.
The US Dollar index erased its losses after the comment from the Fed chairman and jumped towards 100.90 levels again, Emkay Global noted.
"Rupee in line with regional currencies trade lower as higher commodity prices could add pressure on central banks to raise interest rate earlier even after the expectation of slower growth. Domestic fundamentals are turning down with disappointing corporate earnings and higher inflation," Dilip Parmar, Research Analyst, HDFC Securities, said.
Foreign fund outflows and a stronger greenback along with weaker Chinese yuan could be a bad combination for rupee bulls. In the near term, rupee traders should focus on the Chinese Yuan (Offshore), which plunged more than 2 per cent this week, the biggest weekly decline after August 14, 2015, he added.
"Risk sentiments are dented as wider markets are under pressure. Geopolitical issues are very much alive. The Indian Rupee is likely to be under pressure," Praveen Singh, AVP- Fundamental currencies and Commodities analyst, said.
Forex outflows also hit the rupee sentiment.
Foreign institutional investors remained net sellers in the capital market on Friday as they offloaded shares worth ₹2,461.72 crore, according to the stock exchange data.
Brent crude futures, the global oil benchmark, slipped 1.39 per cent to $106.82 per barrel.
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