The Indian rupee slumped on Tuesday, retreating from a nearly three-week high hit earlier in the day as growing worries about global economic growth sparked a recovery in the dollar, offsetting data showing sharply easing domestic inflation.
The dollar recovered its footing in Europe on Tuesday after sinking to its lowest in a month against the yen amid deepening worries over global growth and an equities sell-off that is gathering pace.
The advance in the greenback erased earlier gains in the rupee after data late on Monday showed India's consumer inflation in September slowed to its lowest on record.
Data on Tuesday showed wholesale inflation slid to the lowest in nearly five years in September.
"The rupee may remain range bound from here, but the next big move will again be defined by how
the dollar moves globally," said Anil Bhansali, vice president at Mecklai Financial.
The partially convertible rupee closed at 61.41/42 per dollar compared with 61.0950/1050 on Monday, its weakest close since Oct. 1.
That marked a sharp swing after the rupee had risen to as much as 60.90 earlier in the day, its highest level since Sept. 23.
The rupee ceded ground in the late session as the dollar index, which measures the greenback against a basket of currencies, was up close to 0.2 percent for most of the session.
The greenback was also helped by pent-up demand as U.S. markets were closed on Monday and by the mid-month requirement of Indian defence companies, traders said.
Traders also cited caution ahead of elections in India's western Maharashtra state on Wednesday.
In the offshore non-deliverable forwards, the one-month contract was at 61.70/80 while the three-month was at 62.33/62.43.
The Indian rupee slumped on Tuesday, retreating from a nearly three-week high hit earlier in the day as growing worries about global economic growth sparked a recovery in the dollar, offsetting data showing sharply easing domestic inflation.