A smart rebound in the stock market and sustained capital inflows, however, restricted the rupee loss.
India will not be immune from the impact of the potential September rate hike, but is better placed than most of its rivals at this juncture, a forex dealer said.
Federal Reserve chair Janet Yellen in her speech at the annual Jackson Hole conclave last week hinted at a second interest rate-hike sooner rather than later against the backdrop of continued solid performance of the US labour market and economic activity.
In global trade, the dollar maintained its bullish momentum against major trading counterparts. In early trade, the US dollar index was up 0.27 per cent at a fresh two-week high of 95.76 against a basket of six major currencies.
The rupee today resumed substantially lower at 67.14 compared to previous close of 67.06 at the Interbank Foreign Exchange (forex) market on fresh bouts of dollar demand.
It kept descending, weighed down by early fall in local equities and strengthening dollar value to hit an intra-day low of 67.22, before ending at 67.18, revealing a loss of 12 paise, or 0.18 per cent.
The RBI fixed the reference rate for the dollar at 67.1810 and euro at 75.1823.
In cross-currency trades, the rupee recovered against the pound sterling to end at 87.83 from 88.53 and rebounded against the euro to settle at 75.08 as compared to 75.71.
It also bounced back against the Japanese yen to finish at 65.73 from 66.75 per 100 yens.
In the forward market, premium for dollar remained under immense pressure due to continued receipts by exporters.
The benchmark six-month premium for January declined to 163.5-165.5 paise from 166-168 paise and the forward July 2017 contract also moved down to 354.5-356.5 paise against 360-362 paise last Friday.
Meanwhile, the BSE Sensex rose by 120.41 points to close at 27,902.66 while the broader Nifty rose 34.90 points to end at 8,607.45.
Foreign portfolio investors bought shares worth Rs 286.52 crore on net basis today, provisional exchange data showed.
PTI