The rupee fell on Thursday, snapping two sessions of gains, as euro zone concerns again took centrestage with worries over whether Spain would seek a bailout soon.
The rupee's gains from U.S. President's Barrack Obama's re-election were wiped out as global stocks and the euro fell, pulling down the local currency with it.
Local shares ended down 0.3 percent, ending a six-day winning streak.
"We believe a lot of positive news has already been priced in and we reduce our bias on short USD/INR into year-end," said Vivek Rajpal, strategist at Nomura in Mumbai.
The investment bank expects the rupee to trade at 53 to the dollar by end-December and advises investors to short USD/INR through options in the near term.
The partially convertible rupee closed at 54.36/37 p er dollar, 0.3 percent weaker than its previous close of 54.2050/2150.
Investors will closely watch how the government manages its finances and whether it can push through key reforms on insurance and pensions when parliament meets later this month.