The rupee fell to an over-two-month low on Friday, extending its losing streak to a third week, as investors remained cautious on risk assets ahead of a key eurogroup meeting and worries over the U.S. 'fiscal cliff'.
The unit fell 0.75 percent for the week, in which the country's twin deficits again came to the fore with a string of disappointing macroeconomic data.
Investors expect the rupee to closely track global developments next week with eurogroup ministers slated to meet on Tuesday to forge a deal on Greece.
Worries over the U.S. fiscal situation also continue to add to global growth worries.
Dealers said talk of intervention by the Reserve Bank of India kept a lid on the rupee's losses, though there was no unanimity over whether the central bank actually sold dollars.
"I do not think that rupee will weaken beyond 55.50 to the dollar this year. Otherwise the RBI will use its firepower," said Satyajit Kanjilal, chief executive at Forexserve.
Still, the rupee fell to 55.2050 to the dollar in the session, a level last seen on September 13, a day before the government announced key reforms in aviation and multi-brand retail.
The partially convertible rupee ended weaker at 55.1650/1750 to a dollar as against its previous close of 54.70/71.
Investors will now closely watch the parliament session beginning Thursday to see whether the government can push through its key reform proposals like foreign direct investment in pension and hiking the limit for insurance.
The tepid response to the telecom spectrum auction, which garnered about one-fourth of the 400 billion rupees budgeted, will make it difficult to keep the fiscal deficit in check.
The trade deficit for October widened to its worst at $21 billion, fueling concerns about the current account deficit.
"We expect India's growth recovery to remain shallow, as the worsening of the twin deficit suggests that the macro-economic imbalances have yet to correct," Nomura said in a note.
In the offshore non-deliverable forwards segment, the one-month contract was at 55.50 while the three-month was at 56.07.
In the currency futures market, the most traded near-month dollar/rupee on the National Stock Exchange and the MCX-SX closed around 55.3275 with total traded volume of $4.5 billion.