The rupee strengthened by 65 paise to end at 72.72 (provisional) against the US dollar on Wednesday on the back of weakness in the American dollar and rise in risk appetite in the global markets.
At the interbank forex market, the local unit opened at 73.26 against the greenback and witnessed an intra-day high of 72.71 and a low of 73.26.
It finally settled at 72.72 against the American currency, registering a rise of 65 paise over its previous closing. On Tuesday, the rupee had settled at 73.37 against the American currency.
"Market sentiments improved on hopes that massive stimulus packages from governments, easy monetary policies from central banks and progress in vaccination programmes would boost economic growth," said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.12 per cent to 90.67.
Meanwhile, Brent crude futures, the global oil benchmark, rose 1.69 per cent to $63.76 per barrel.
"Furthermore, the rupee appreciated on softening of crude oil prices and consistent FII inflows. Additionally, improved macroeconomic data continued to support rupee. Rupee may trade in the range of 72.80 to 73.80 in next couple of sessions," Mukadam added.
On the domestic equity market front, the BSE Sensex ended 1,147.76 points or 2.28 per cent higher at 51,444.65, while the broader NSE Nifty advanced 326.50 points or 2.19 per cent to 15,245.60.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs 2,223.16 crore on Tuesday, according to exchange data.
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