The rupee pared its initial losses, trading 11 paise lower at 68.15 against the American currency in late morning deals on sustained dollar demand from importers and banks amid higher dollar overseas.
Traders are awaiting the release of the minutes of the US Federal Reserve's early-May policy meeting later in the day.
The rupee hit a fresh 16-month low of 68.15 in morning trade as against yesterday's closing level of 68.04 per dollar at the inter-bank foreign exchange here. It slid further to 68.29 at 1030 hrs.
The domestic unit hovered between 68.29 and 68.15 during morning deals.
Continued foreign capital outflows and lower local equities also added to rupee volatility, dealer said.
Meanwhile, the US dollar were higher versus a basket of currencies in early Asian trade, with investors awaiting the minutes of the US Federal Reserve's last policy meeting for hints on the pace of further US monetary tightening.
The 30-share BSE Sensex lower by 67.67 points, or 0.20 per cent, at 34,583.57 at 1040 hrs.