On Monday, the rupee strengthened by 10 paise to settle at 82.72 against the US dollar as the American currency fell from its high points.
Foreign capital withdrawals and a flat domestic stocks trend, according to forex traders, dampened investor morale and constrained the appreciating bias.
The rupee appreciated 19 paise to close at 82.51 against the US dollar on Wednesday after the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points.
The rupee was also bolstered by a rise in domestic equity markets and a drop in the value of the dollar relative to major foreign currencies, according to currency traders.
The rupee appreciated 10 paise to 82.66 against the US dollar in early trade on Tuesday on the back of a positive trend in domestic equities and relatively weaker greenback.
Forex traders claimed that foreign capital outflows, however, limited the increase in the native currency.