The rupee strengthened sharply against a softer dollar, which is off its 20-year peak, broadly reflecting a general upswing in risk assets globally, despite a surge in domestic inflation last month after falling for three months before.
Bloomberg quoted the rupee last at 79.3112, compared to its previous close of 79.5313 and well off its record weak level of over 80 per dollar.
In early trade, the rupee gained 25 paise to 79.28 against the US dollar in early trade, according to PTI.
That even as retail inflation rose back up to 7 per cent last month, stalling a three-month downtrend and in contrast to the Reserve Bank of India's slowing price pressures expectations.
On Monday, the finance ministry blamed the increase in inflation on the base effect as well as higher costs for food and fuel, and emphasised that the impact of government actions to slow price growth will become more noticeable in the months to come.
While that inflation surge suggests more aggressive rate hikes by the RBI, falling crude prices, ribust capital inflows have supported the Indian currency.
Crude oil is down about 30 per cent since the middle of June and back to levels not seen since Russia invaded Ukraine.
But the expected softer reading of US inflation due later on Tuesday was driving a global risk assets' rally and weighed on the dollar, helping the domestic currency.
"The outcome of the CPI is going to be really important for the Fed...it would probably take an acceleration, a strong outcome in the CPI, to see them hike by 75 basis points," said Kristina Clifton, a senior economist and senior currency strategist at Commonwealth Bank of Australia.
"If we get a reading sort of broadly in line with what the consensus is expecting, we would say they would go for a 50 basis point increase."
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