The rupee appreciated 34 paise to close at 81.38 (provisional) against the US dollar on Wednesday as a weak greenback in the overseas market and a rally in domestic equities boosted investor sentiment.
At the interbank foreign exchange market, the local unit opened at 81.63 and touched an intra-day high of 81.38 and a low of 81.64 against the greenback.
The rupee finally settled at 81.38, registering a rise of 34 paise over its previous close.
On Tuesday, the rupee declined 4 paise to close at 81.72 against the US dollar.
The Indian rupee registered the first monthly gains in the past eleven months following a rebound in the risk assets, lower crude oil prices and foreign fund inflows, said Dilip Parmar, Research Analyst, HDFC Securities.
"It is poised to end the month 1.6 per cent higher, its biggest gain since August 2021," Parmar said.
Meanwhile, the dollar index slipped 0.29 per cent to 106.51.
According to Parmar, the dollar index slipped, weighed by ongoing demand for riskier assets as investors speculated that China may gradually unwind its Covid curbs.
Global oil benchmark Brent crude futures advanced 2.13 per cent to $84.80 per barrel.
Forex traders said investors will focus on the US Federal Reserve Chairman Jerome Powell's speech and the release of key domestic macroeconomic data for further cues.
Domestic GDP data for the second quarter, fiscal deficit numbers for April-October and core sector data for October are scheduled to be released later in the day.
BSE Sensex advanced 417.81 points or 0.67 per cent to end at 63,099.65, while NSE Nifty gained 140.30 points or 0.75 per cent to 18,758.35.
Foreign institutional investors (FIIs) were net buyers on Tuesday as they bought shares worth Rs 1,241.57 crore, according to exchange data.