The rupee depreciated by 20 paise to close at 79.84 against the US dollar on Friday amid a strengthening greenback overseas.
At the interbank foreign exchange market, the local currency opened at 79.75 and moved in a range of 79.73 to 79.84 during the day.
It finally ended at 79.84 against the American currency, down 20 paise over its previous close of 79.64.
Forex traders said the US dollar index witnessed an upturn after comments from US Federal Reserve officials over the quantum of rate hikes weighed on investor sentiments.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.18 per cent to 107.67.
Foreign fund outflows from Indian equities also dragged the local unit down.
Foreign institutional investors were net sellers in the capital market on Thursday as they offloaded shares worth Rs 1,706.00 crore, as per exchange data.
"Rupee continued to consolidate in a narrow range after hawkish FOMC meeting minutes," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
A string of US central bank officials said the Fed needs to keep raising borrowing costs to bring high inflation under control.
"We expect the USD-INR (Spot) to trade sideways and quote in the range of 79.20 and 79.80," Somaiya added,
Meanwhile, Brent crude futures, the global oil benchmark, declined 1.02 per cent to USD 95.60 per barrel.
On the domestic equity market front, the BSE Sensex ended 651.85 points or 1.08 per cent lower at 59,646.15, while the broader NSE Nifty declined 198.05 points or 1.10 per cent to 17,758.45.
"Rupee traded weak on Friday backed by some weakness in capital markets from higher levels. The week saw volatile range between 79.35-79.90 as the dollar index stayed in a tight range," said Jateen Trivedi, VP Research Analyst at LKP Securities.
FII buying helped the rupee gain strength in the first half of the week but it later gave up the gains as the dollar index found support near USD 106 and WTI crude near USD 85, he added.
Dilip Parmar, Research Analyst, HDFC Securities, said the rupee depreciated amid stronger dollar index and risk-averse sentiments. "Low bond price and Foreign fund outflows also weighed on the rupee."
Parmar further said the dollar index continues to retrace the mid-July to mid-August sell-off. The hawkish comments from Federal Reserve members also added fuel to the fire with markets again pricing in a 75 bps hike in the next meeting.
