Indian rupee, the local currency depreciated by 8 paise to 73.63 per US dollar on Tuesday's opening trade, tracking muted domestic equities.
The domestic unit was trading in a narrow range at 73.62 against the greenback at the interbank forex market. It later inched lower at 73.63, falling 8 paise over its previous close.
In a volatile trade, the local unit also moved to a high of 73.59 against the American currency.
On Monday, the rupee setlled 9 paise higher at 73.55 per dollar.
According to IFA Global Founder and CEO Abhishek Goenka, the lower than expected headline CPI print should bring some cheer to the bond markets.
"FPIs are now utilising close to 43 per cent of their investment limit in Gsecs (up from around 40 per cent a month ago). The RBI continues to mop up inflows and that is keeping USD/INR supported," he added.
Retail inflation declined to 6.93 per cent in November on softer food prices, though it remained above the comfort level of the Reserve Bank.
Meanwhile, the dollar index was trading 0.01 per cent higher at 90.71 against a basket of six currencies.
Reliance Securities said in a research note, "US Dollar Index was trading weaker this Tuesday morning in Asian trade ahead of the Federal Reserve meeting this week and as demand for the safest assets remained weak amid progress toward agreeing US fiscal stimulus and optimism for a Brexit deal.
On the domestic equity market front, Sensex was trading 360 points lower at 45,8923 and Nifty fell by 99 points to 13,458.
Foreign portfolio investors (FPIs) bought shares worth Rs 2,264.38 crore, while domestic institutional investors (DIIs), were net sellers to the tune of Rs 1,721.11 crore in the Indian equity market on 14 December, provisional data showed.
Brent crude futures, the global oil benchmark, fell 0.62 per cent to USD 49.98 per barrel.