Mumbai: The rupee surrendered its early strong gains against the American currency and ended marginally lower by two paise at 68.20 despite dollar outlook remaining lacklustre.
Dealers attributed stray dollar buying by some banks on behalf of their clients to meet their import requirements.
However, calmer local equities which survived largely unhurt alongside smooth supply of dollars towards the fag-end limited any major fall.
The forex market displayed a remarkable level of volatility reacting to weekend developments after US President Donald Trump's reaffirmation of his protectionist stance sparked fresh concerns about the impact on Indian currency.
Meanwhile, the US dollar bore the brunt of investor displeasure and faced heavy selling pressure on the back of heightened uncertainty about the direction of US fiscal policy, a forex trader commented.
The domestic unit resumed firmly higher at 68.05 from last Friday's closing value of 68.18 at the Interbank Foreign Exchange (Forex) market and gained further ground to 68.02 on bouts of dollar selling.
However, it took a sudden reversal in mid-afternoon trade following heavy dollar demand and plunged to hit a fresh intra-day low of 68.23 before settling at 68.20, showing a small loss of 2 paise, or 0.03 per cent.
Stretching its downtrend for the fourth straight day, it has depreciated by a whopping 25 paise against the dollar.
Meanwhile, foreign investors have pulled out over Rs 5,100 crore from the Indian capital market so far this month on lingering concerns over growth slowdown as compared to other emerging markets.
The US dollar index was trading sharply lower at 100.34 in late afternoon session.
The RBI fixed the reference rate for the dollar at 68.0843 and for the euro at 72.1498.
Underlying rupee sluggishness was reflected in cross-currency trade too with the British pound taking a blow, plunging by 130 paise to 84.91 from weekend level of 83.61 per pound.
It also fell back sharply against the euro to end at 73.16 as compared to 72.48 and also retreated against the Japanese Yen to finish at 59.99 per 100 yens from 59.12 earlier.
Meanwhile, country's foreign exchange reserves rose by USD 687.9 million to USD 359.842 billion in the week to January 13.
In the previous week, forex reserves had fallen by USD 1.14 billion to USD 359.155 billion.
Domestic equities made a modest recovery attempt on the back of buying in metal, energy and FMCG shares despite early volatile trade amid weak Asian cues.
The benchmark Sensex climbed 82.84 points to end at 27,117.34, while broader Nifty rose 42.15 points to 8,391.50.
In the forward market, premium for dollar displayed a lacklustre trade due to lack of market moving factors.
The benchmark six-month premium for June was quoted at 138.25-139 paise from 137.75-139.75 paise and far-forward December 2017 contract at 279.50-280 paise from 279-281 paise.
Crude prices witnessed modest selling on Monday, falling for the first time in three sessions as prospects of rising US production weighed on the market.
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