The rupee lost 18 paise, falling below 67 a dollar, and trading at 67.06 against the US currency at the inter-bank foreign exchange market early today, on the back of strong demand for the greenback from importers and some banks.
While the dollar itself was down on Friday against a basket of currencies following a sell-off on Wall Street and the slumping commodity prices, forex dealers said the dollar's gain against some currencies and sustained capital outflows weighed on the domestic unit.
The rupee had closed 17 paise lower against the US dollar at 66.88 on Friday, the lowest level in more than two years in the face of strong dollar demand.
The benchmark BSE Sensex, which was trading below the 25,000-mark after falling 176.70 points or 0.70 per cent to 24,867.73 in early trade, later reversed losses and was trading above the 25,000-level while the Nifty recaptured the 7,600-mark in late morning deals.
Meanwhile, foreign investors bought shares worth Rs253.73 crore last Friday, as per provisional data.
On Friday, crude oil prices fell to near seven-year lows and China`s yuan fell another half per cent against the dollar in offshore overnight trading after authorities set the mid-point for the currency`s official onshore value at a four-year low.
The futures market seems to have priced in a 79-per cent chance of a rate increase on Wednesday, the end of the Fed`s policy meeting, according to CME Group`s FedWatch programme. They don`t expect another hike until the middle of 2016.
Those factors caused traders to exit long dollar positions, said Steve Englander, director and global head of G10 FX strategy at Citigroup, boosting European currencies.
The dollar on Friday fell as much as 0.7 per cent versus both the Swiss franc and the euro. It last traded down 0.5 per cent against the franc at 0.9823 francs per dollar. The euro was last up 0.45 percent versus the dollar at $1.0989.
The selloff also pushed the dollar lower against the Japanese yen, which moved below 121 yen for the first time since early November.