The domestic currency has been trading in a narrow range ahead of RBI's monetary policy meeting outcome, scheduled for February 7. At the Interbank Foreign Exchange market, the rupee moved between 71.68 to 71.49 during the session, before finally ending at 71.56, showing a gain of just 1 paise.
On Tuesday, the rupee had settled 23 paise higher at 71.57 against the greenback.
"This week, there are relatively thin volume trades in currency markets, as many Asian markets are shut on Lunar New Year," HDFC Securities Head, PCG and Capital Markets Strategy, V K Sharma said.
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He added that volatility for the USD-INR pair could be confined to a narrow range until the release of the policy statement. According to Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management, though Indian rupee is the worst performing emerging market currency over the last one month, it is expected to recover "should crude prices continue to slide and RBI announces a rate cut in Thursday's meeting".
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 96.21, higher by 0.16 per cent. Foreign funds purchased shares worth Rs 694.97 crore on a net basis Wednesday, and domestic institutional investors bought equities worth Rs 525.26 crore, provisional data showed.
The benchmark Brent crude futures fell 0.76 per cent to USD 61.51 per barrel. Meanwhile, domestic equity indices darted up for the fifth straight session Wednesday on across-the-board buying amid expectations of a shift in RBI's policy stance.
The BSE Sensex vaulted 358.42 points, or 0.98 per cent, to close at 36,975.23, while the broader NSE Nifty gained 128.10 points, or 1.17 per cent, to 11,062.45.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.5731 and for rupee/euro at 81.5461. The reference rate for rupee/British pound was fixed at 92.6886 and for rupee/100 Japanese yen at 65.21.
(Inputs from PTI)
