The rupee on Monday snapped its two-day upward movement and dropped by 8 paise to close at 55.44 on fresh dollar demand from importers.
Capital inflows worth Rs 600 crore (Rs 6 billion) in stocks, however, helped cushion rupee from a sharper fall, forex dealers said.
The rupee commenced on a strong note at 55.26 a dollar against last weekend's close of 55.36 at the Interbank Foreign Exchange market.
Soon after, it touched day's high of 55.25 in line with initial firmness in domestic equities.
However, the rupee fell back on renewed dollar demand from importers, mainly oil refiners, and also due to a recovery in dollar overseas.
It touched a low of 55.50 before concluding at 55.44, a fall of eight paise over Friday's close.
The dollar index, after falling to its three-month low against the euro last week, was up on Monday by 0.16
"The rupee started on a positive note against the dollar and closed on a weaker note.
"The early gains in rupee were mostly attributed to the poor jobs data from the US and corresponding gains in the Euro.
"During the closing hours, rupee started depreciating against the US dollar on account of dollar demand by the Indian companies," Abhishek Goenka, Founder and CEO, India Forex Advisors said.
The rupee is expected to be volatile ahead of important events due in the local and international markets.
The global markets are now looking ahead for major events this week in the form of FOMC meet and German's Constitutional Court ruling, he added.
Meanwhile, the Indian stock market benchmark Sensex in listless but volatile trade ended up by 17.13 points or 0.10 per cent on Monday.
