The domestic unit registered a high of 41.80 backed by strong inflows and weak dollar overseas. Also, dollar liquidation was observed in the market to raise cash to meet new reserve requirements.
Later, the Rupee declined and slipped past 42, as state-run banks once again entered the market to cap the home currency's gains.
Meanwhile, Trade Minister said the rising rupee has been hurting the exporters.
Forward premia moved sideways as drastic volatility was reflected back in the forwards market. Six-month and 12-month forward premia closed at 6.28 (6.21) per cent and 4.78 (4.68) per cent respectively.
The Reserve Bank of India (RBI) today fixed the reference rate at Rs 41.89 per US dollar, down by 16 paise, from its yesterday's rate of Rs 41.73 per USD, according to a RBI spokesperson here.
Against the Euro, the Rupee closed at 56.85, Pound finished at 83.94 per unit each and Yen was quoted at 35.37 per 100 units, brokers said.