"Since the morning, rupee has been tracking the move in crude. Overnight drop in oil led rupee to appreciate. However, the escalating tensions in Middle East limited the gains in rupee," said Rahul Gupta, Currency Research Head, Emkay Global Financial Services Limited. Mr Gupta added that the "market was disappointed with US Fed's mixed outlook".

The Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.75 to 2.0 per cent, but dimmed hopes for subsequent rate cuts as it took a cautious approach to further reductions in borrowing costs. Describing the US economic outlook as "favourable", Federal Reserve Chairman Jerome Powell said the rate cut was designed "to provide insurance against ongoing risks" including weak global growth and resurgent trade tensions.

Brent futures, the global oil benchmark, soared 2.14 per cent to $64.96 per barrel after Iran warned of an "all-out war" if it is targeted in the aftermath of the drone attacks on Saudi Arabia's oil infrastructure, further pushing up tensions across the Persian Gulf.

Heavy selling in domestic stock markets and sustained foreign fund outflows also weighed on the domestic currency, analysts said.