The rupee pared its initial gains but was still trading strong at 67 on increased selling of dollar by banks and exporters.
According to forex dealers, strengthening of dollar against other currencies overseas capped the rupee's gains.
The rupee strengthened by 35 paise to 66.90 against the US dollar in early trade against the previous close 67.25 at the Interbank Foreign Exchange market today.
It hovered in a range of 67.02 and 66.86 before quoting at 67, up 25 paise at 4.20 pm local time.
Meanwhile, the 30-share BSE index Sensex ended lower by 65.58 points or 0.24 per cent at 26,777.45 as traders remained wary ahead of the RBI monetary policy review on Tuesday.
Balancing the jump in retail inflation in April coupled with exogenous headwinds, DBS Bank expects the Reserve Bank of India to keep its policy rate steady at 6.5 per cent.
The dollar ros e on Monday, having hit a more than three-week lows against a basket of major currencies after a poor employment report prompted investors to rule out the chance of a hike in US interest rates in June.
The dollar index rose 0.2 per cent to 94.246, having hit a low of 93.855 on Friday — a level last seen on May 12. It tumbled 1.6 per cent on Friday, posting its second biggest one-day drop this year.