The rupee strengthened sharply against the US dollar in late trade on Wednesday, gaining 52 paise as some foreign banks sold the greenback, likely on account of overseas investment into domestic markets, traders said.

The domestic currency closed at 81.25 per US dollar as against 81.77 at previous close, Bloomberg data showed. In 2023, the rupee has appreciated 1.8 per cent against the US dollar.

The domestic currency was also boosted by a weaker US dollar index as investors anticipate a slowdown in the pace of the Federal Reserve’s rate hikes, given data showing easing inflation in the world’s largest economy.

The US dollar index, which measures the greenback against six major currencies, was at 101.91 at 3:30 pm IST on Wednesday as against 102.39 at previous close.

“There were some flows today, which had come through the foreign banks, it’s essentially an FPI flow. We also did not hear of the