The rupee was trading at 119.80/120.00 to the dollar, compared with Tuesday's close of 120.20, after a day of heavy forward bookings of dollars by importers.
The currency has been volatile since the central bank on Feb. 9 stopped intervening in the foreign-exchange market to defend a specific level.
Three dealers said that on Tuesday, the rupee was traded as weekly as 120.90 rupees in early trade, then strengthened to 119.80 on sales of dollars by state banks.
The central bank were not immediately available for comment on Wednesday on whether it had directed state banks to sell dollars, or the sales stemmed from other factors.
On Tuesday, the central bank said that the rupee volatility was because of hedging by importers and it said it expects the currency to recover.
Currency dealers expect further depreciation with high volatility after the central bank changed its intervention method to a quantity, instead of defending a particular level of the currency against the U.S. dollar. It had spent more than $2.7 billion to defend the currency since July.
The rupee weakened 2.25 percent on Tuesday, extending the fall to 5.4 percent for the first three sessions following the central bank's policy change.