Forex market was closed on Monday on account of assembly elections in Maharashtra.

The rupee on Tuesday rose to a two-week high against the US dollar on hopes of partial trade deal between the US and China next month. The domestic currency closed at 70.94 to the dollar, a gain of 20 paise or 0.28 per cent over the previous close on Friday. Forex market was closed on Monday on account of assembly elections in Maharashtra.

Analysts said growing expectations of a partial trade deal between the US and China next month bolstered the appetite for riskier assets like emerging currencies. Also, Commerce Minister Piyush Goyal said India and the US will hopefully come out with the first set of agreements soon to address their trade issues.

Trade tensions have weighed on emerging and developing currencies as investors are looking for safe bets amid uncertainty over trade growth.

"Trade talks between the US and China have started to progress and the risk-on sentiment could further support the rupee. Brexit related uncertainty could continue as fresh updates on the same are likely to come in today's evening session. Parliament Brexit Vote is scheduled and we expect that could keep the volatility high for pound," Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services Private Ltd, said.

US President Donald Trump said he expects to sign the partial deal on the sidelines of the Asia-Pacific Economic Cooperation summit in Chile next month when he meets with Chinese President Xi Jinping.

China's Vice foreign minister Le Yucheng also said that progress was being made in talks and no problem was beyond resolution. The dollar strengthened against major global rivals as the British pound slipped from five-week highs due to Brexit uncertainty and a steady euro.

The US dollar index was up 0.13 per cent at 97.45. Crude oil prices also edged up on hopes of a US-China trade deal. Global benchmark Brent crude rose 0.29 per cent or 17 cents to $59.25 per barrel.

Meanwhile, domestic stocks declined on Tuesday, ending their six-day rally. Sensex dropped 0.85 per cent or 334.54 points while Nifty shed 73.50 points or 0.63 per cent mainly due to a sharp fall in Infosys.