The Indian rupee dipped 3 paise to close at 71.04 against the US dollar on Wednesday amid rising demand for the greenback vis-a-vis other currencies overseas, even as crude oil prices eased.
Forex traders said a weak trend in domestic equities, political unrest in the US and unabated foreign fund outflows also weighed on the local unit.
At the interbank foreign exchange market, the rupee opened at 71.10, then lost ground and fell to an intra-day low of 71.14 against the American currency.
However, it recouped some losses to finish at 71.04 against the US dollar, down 3 paise over its previous close.
Safe-haven assets like US Treasury bonds and the yen rallied after top US Democrat Nancy Pelosi on Tuesday announced the opening of formal impeachment inquiry into President Donald Trump.
"Indian rupee is flat as there are no major triggers in the market. The political unrest in the US, Middle-East tensions and no update over US-China trade deal has been keeping rupee under pressure," said Rahul Gupta, Currency Research Head, Emkay Global Financial Services Limited.
Gupta further noted that "the only trigger is RBI policy, so ahead of that we expect USD/INR spot to trade in 70.70-71.50."
The central bank is scheduled to announce its next bi-monthly monetary policy on October 4.
Brent futures, the global oil benchmark, dropped 2.14 per cent to USD 61.75 per barrel.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.35 per cent to 98.68.
Foreign investors pulled out a net Rs 342.40 crore from Indian equities on Wednesday, according to exchange data.
In the domestic equity markets, the 30-share BSE Sensex ended 503.62 points, or 1.29 per cent, lower at 38,593.52. The broader NSE Nifty plunged 148 points, or 1.28 per cent, to 11,440.20.
The 10-year government bond yield was at 6.76 per cent.The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 70.8477 and for rupee/euro at 77.8611. The reference rate for rupee/British pound was fixed at 88.1152 and for rupee/100 Japanese yen at 65.88.