Rupee climbed to a fresh three-week high on Thursday as banks sold dollars to tide over a cash crunch in the domestic money market, while firmer Asian stocks underpinned sentiment.
At 9:05 am (0335 GMT), the partially convertible rupee was at 42.68/69 per dollar, above Wednesday's close of 42.73/74 per dollar.
The US Federal Reserve held interest rates steady on Wednesday and signaled it was in no hurry to raise them, even as it voiced greater concern about inflation.
On Tuesday, the central bank raised its key lending rate by 50 basis points to 8.5 per cent. It was the second hike this month and took the repo rate to its highest since March 2002.
Cash supplies in the banking system tightened after outflows of about Rs 350 billion ($8.2 billion) for quarterly corporate tax payments last week and Rs 60 billion for settlement of Friday's bond auctions.