Traders expect the local unit to appreciate further in the short term.
The partially convertible rupee closed at 44.83/84 per dollar, its highest level since Jan. 4, and 0.3 percent stronger than its previous close of 44.9550/9650.
"I think it may touch 44.70 tomorrow or day after. 44.90 was the technical level. Because that has been broken, it will comfortably come to 44.70," said Sudarshana Bhat, head of forex at state-run Corporation Bank .
Indian shares rose for the second straight session, closing 1.2 percent higher on Wednesday as investors picked up bargains in a market that has under performed so far this year.
"There are lot of forward contracts which are maturing. If you look at the premiums, they have also gone up. So, probably that is a reason," said Naveen Raghuvanshi, an associate vice president at Development Credit Bank .
The euro fell to a session low on Wednesday with some investors disappointed that the European Union would take more time to increase the size of the eurozone bailout fund.
The euro/ dollar was trading at around $1.4146 at the close of the local forex market. The common European unit had been around $1.4240 at end of local trade on Tuesday.
The index of the dollar against six major currencies was up 0.19 percent at 75.636 at the end of the local forex trade.
The one-month onshore forward premium was stable at 30.50 points, while the three-month premium was at 86.50 points versus 82.25 and the one-year was at 296.50 points from previous 291.
The one-month offshore non-deliverable forward contracts were quoted at 45.11, weaker than the onshore spot rate. In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were at 44.8925, 44.8975 and 44.8925 with the total volume at about $7.3 billion.
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