The Indian rupee closed modestly stronger after hitting a two-week high on Monday as a turnaround in the dollar index weighed on regional peers like the Chinese yuan, which touched a seven-month peak earlier in the day.
The rupee closed at 85.0.850 against the U.S. dollar, up 0.1% from its close at 85.2125 in the previous session.
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The currency had risen to 84.79 before trimming gains, as the dollar edged higher against major peers and importer demand emerged above the 85 level, traders said.
The dollar index was little changed at 99 after hitting an over month-low of 98.6 in early trading. The offshore Chinese yuan , meanwhile, was last quoted down 0.1% at 7.18 per U.S. dollar.
U.S. President Donald Trump's trade policy reversals, as well as his sweeping spending and tax-cut bill currently in legislation, have weighed on the appetite for U.S. assets and the dollar, by extension.
"It's a very EM positive environment, and I don't see any reason why that will stop in the near-term," said Brad Bechtel, global head of foreign exchange at Jefferies.
Bechtel pointed out that the dollar could be exposed to steeper losses if China allows the yuan to start moving substantially higher.
