The Indian rupee retreated from more than two-month lows hit early on Wednesday to close little changed as custodian banks stepped in to sell the greenback following late gains in the domestic share market.
Persistent dollar demand from oil refiners, the largest buyers of dollars in the domestic currency market, hurt the rupee during the day.
The euro's losses following the lack of an agreement between international lenders on the next tranche of loans to Greece also weighed on the local unit.
"I think we will get close to 56 in the near-term, but it can be a sell there for some move down towards 54-54.50," said Rajeev Mahrotri, head of forex and debt trading at IndusInd Bank.
"But I see the USD/INR break past 56 by March 2013 as exports and the global economy will continue to disappoint. I am not bearish on the rupee, but I think 52-52.50 is a base, while the upper end will take it close to 57-58 levels."
India's main share index closed up 0.7 percent, its biggest daily percentage gain in almost three weeks as private sector banks such as ICICI Bank rose on value-buying.
The partially convertible rupee closed at 55.11/12 per dollar compared with 55.0950/1050 at Tuesday's close.
Traders said they would now focus on the winter session of parliament due to begin on Thursday, amid worries about the government's ability to contain the fiscal deficit at 5.3 percent of the gross domestic product for fiscal 2012/13.
Though the impact of any resolve shown by the government in shoring up its finances will be felt more immediately on the stock market, the rupee is likely to also benefit. The unit has shed 6.9 percent since its six-month high hit in early October.
In the offshore non-deliverable forwards market, the one-month contract was at 55.39, while the three-month was at 55.97.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 55.15 with a total traded volume of $4.97 billion.