The rupee weakened on Tuesday, retreating sharply from a more than one-week high touched in the previous session, hit by a global sell-off of risk assets and month-end dollar demand from importers.
Italy's inconclusive election result sparked a sell-off on world equity markets and sent safe-haven German bond yields sharply lower as investors feared a resurgence of the euro zone debt crisis.
Caution is expected to prevail ahead of the 2013/14 budget to be presented on Thursday, with investors expecting a fiscally disciplined budget, although credibility on how to shore up finances will also be key.
"Until the budget, global factors could be the guiding force for the rupee, so it will watch the euro and other majors for direction for now," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.
"I am expecting the rupee to trade in a range of 53.70 to 54.35 until the budget," he added.
The partially convertible rupee closed at 54.09/10 per dollar versus its previous close of 53.8650/8750. The unit had touched a more than one-week high of 53.86 on Monday.