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On Tuesday, the rupee had settled 12 paise higher at 83.43 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading marginally higher by 0.02 per cent at 104.90.
Analysts said the dollar index fell initially as the US data showed the growth in retail sales was lower than expected, though the currency recovered with May industrial output numbers topping the forecast.
Officials of the US Federal Reserve indicated a hawkish stance to continue, dousing hopes of an interest rate cut until December.
"The dollar eased against the euro on Tuesday after US retail sales data showed slower growth, suggesting potential Federal Reserve rate cuts later this year," said Anand James, Chief Market Strategist, Geojit Financial Services.
Brent crude futures, the global oil benchmark, rose 0.02 per cent to USD 85.35 per barrel.
In the domestic equity markets, the 30-share BSE Sensex rose 199.63 points, or 0.26 per cent, to 77,500.77 points. The broader NSE Nifty climbed 25.55 points, or 0.11 per cent, to 23,583.45 points.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Tuesday, as they purchased shares worth Rs 2,569.40 crore, according to exchange data.
Analysts attributed the strong FII buying to the firm domestic macroeconomic outlook and a sharp fall in the US treasury yield.
The government data showed the net direct tax collection grew 21 per cent to over Rs 4.62 lakh crore so far this fiscal on higher advance tax payments by corporates, reflecting robust economic activity.
Fitch Ratings on Tuesday raised India's growth forecast for the current fiscal to 7.2 per cent, from 7 per cent projected in March, citing a recovery in consumer spending and increased investment.