The rupee on Friday made a resounding comeback after a brief overnight pause and ended 11 paise higher at a fresh 4-month high of 66.60 against the dollar on renewed selling of the US currency by exporters and banks.
Forex market sentiment turned highly buoyant after overcoming from initial volatile moments on expectations of a big win for the Bharatiya Janata Party (BJP) in the latest round of state assembly elections in five states.
This is the highest closing of the rupee since November 10, 2016.
The exit polls showed the BJP emerging as the single largest party in Uttar Pradesh as well as Goa and coming to power in Uttarakhand.
Smooth supply of dollars on the back of sustained capital inflows into equities and debt predominantly helped the rupee rebound even calm local equities too supported the upmove.
Foreign funds invested a net worth Rs 487.61 crore on Thursday as per the provisional data from exchanges.
A BJP win will increase the prospects of a series of policy initiatives on the economic reform side to attract more Foreign Direct Investment (FDI) and smooth transition to the Goods and Services Tax (GST) regime, a forex trader said.
The home currency resumed a bit soft at 66.72 from Thursday's close of 66.71 at the Interbank Foreign Exchange (forex) market and weakened further to 66.73 on initial stray dollar demand.
But, later it regained strength to hit an intra-day high of 66.56 before ending at 66.60, showing a smart gain of 11 paise, or 0.16 per cent.
On the global front, the greenback traded little changed against its major rivals as investors turned cautious ahead of US jobs data that is likely to cement expectations of a Federal Reserve interest rate hike next week.
Meanwhile, crude prices remained under intensifying pressure with the US West Texas Intermediate benchmark dipping below the significant $50/bbl on growing worries over abundant supply following record high US inventory.
The US dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was trading lower at 101.87.
The RBI fixed the reference rate for the dollar at 66.6880 and for the euro at 70.6426.
In cross-currency trade, the rupee also bounced back against the British pound to ended at 80.95 from 81.10 and hardened further against the Japanese Yen to finish at 57.73 per 100 yens from 58.21 earlier.
However, it dropped further against the euro to settle at 70.63 from 70.43 on Thursday.