The Indian rupee fell to a fresh three-year low on Wednesday, beyond 47.00 per dollar, undermined by a weaker stock market and dollar strength against the Japanese yen and other major currencies.
Some dealers said a stronger dollar in the offshore non-deliverable forwards market also pulled the rupee down as it provided an opportunity to buy dollars onshore and sell them overseas.
The rupee ended at 46.9850/9950, 0.6 percent weaker than Tuesday's close of 46.70/71 but above the day's low of 47.04 as exporters came in to sell dollars at the higher levels.
"The (dollar) buying momentum is still there and the rupee may not recover drastically," a dealer with a foreign bank said. Finance Minister Palaniappan Chidambaram said the rupee's movement was reflecting demand and supply conditions.
J.P. Morgan's six-currency REER index shows the rupee overvalued by 3 percent, although it has depreciated about 1.3 percent against the dollar since Friday's close.