The rupee depreciated 21 paise to close at 85.63 (provisional) against the US dollar on Tuesday, on weak domestic markets and a bounce back in US treasury yields.
Forex traders said the recent surge in the US 10-year yield reflects mounting concerns over fiscal and monetary policies, driving borrowing costs higher.
Foreign fund outflows and positive crude oil prices also weighed on the rupee. However, the weak US dollar index cushioned the downside, they said.
At the interbank foreign exchange, the domestic unit opened at 85.47 and moved between an intra-day high of 85.39 and a low of 85.65 against the greenback. The unit ended the session lower at 85.63 (provisional), registering a fall of 21 paise over its previous closing level.
On Monday, the rupee appreciated 15 paise to settle at 85.42 against the US dollar.
"We expect the rupee to trade with a negative bias amid FII outflows and weak domestic markets. However, a declining US dollar index may support the rupee at lower levels," Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan said, adding that USD-INR spot price is expected to trade in a range of 85.30 to 85.90.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.19 per cent at 100.23.
Brent crude, the global oil benchmark, fell 0.14 per cent to USD 65.45 per barrel in futures trade.
In the domestic equity market, the 30-share BSE Sensex declined 872.98 points, or 1.06 per cent, to close at 81,186.44, while the Nifty fell 261.55 points, or 1.05 per cent, to 24,683.90.
Foreign institutional investors (FIIs) offloaded equities worth Rs 525.95 crore on a net basis on Monday, according to exchange data.
Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.