The rupee rose 0.4% in spot transactions to 131.00/10 in early trade to hit its highest since 15 July, Thomson Reuters data showed, but retreated to 131.45/50 to close slightly firmer than Tuesday’s close of 131.50/60.
It gained 0.4% on Tuesday on inflows from gold sales.
“We saw some exporter dollar sales in the absence of importer demand for dollars,” said a currency dealer.
Other dealers said the weakening of the dollar, due to the partial US Government shutdown also boosted sentiment.
The dollar, which had fallen on Tuesday as the shutdown began, fell another 0.5% to its lowest since late August against the yen.
The rupee hit a record low of 135.20 on 28 August, but has managed to stem further losses since. It has risen 3.2% since hitting the record low.
The Sri Lankan currency has lost 3.0% this year, after depreciating about 10% in 2012.