Mumbai | The rupee depreciated 4 paise to close at a record low of 85.79 against the US dollar on Friday, as strong dollar demand from importers and a muted trend in domestic equities weighed on investors' sentiments.

Forex traders said the dollar gained against most currencies during 2024 and continued to remain on a strong footing this year.

The US dollar index breached the crucial 109-mark. The uptrend in the American currency was underpinned by expectations of fewer rate cuts and a view that the US economy will continue to outperform its peers globally.

At the interbank foreign exchange, the rupee opened on a weak note at 85.77. During intra-day deals, it sank to its lowest level of 85.80 and touched the high of 85.73 against the American currency.

The local unit settled for the day at a record low of 85.79, registering a fall of 4 paise over its previous close.

Reports of RBI selling US dollars supported the rupee at lower levels, traders said.

On Thursday, the rupee depreciated 11 paise to close at 85.75 against the dollar.

On December 27, the local currency touched its lifetime intra-day low of 85.80 against the greenback.

Traders said the market will keep its focus on US President-elect Donald Trump's policies, which could boost growth but might also increase price pressures and this would keep the US Fed on hold for longer on interest rate cuts.

"We expect the rupee to trade with a negative bias on a strong US dollar and demand for dollar from importers. FII outflows may also put pressure on the rupee. However, any further intervention by the RBI may support rupee at lower levels," Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said.

USD-INR spot price is expected to trade in a range of 85.60-86.00, Choudhary added.

According to Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, pressures from a strong dollar index and rising crude prices continued to weigh on the currency.

"With limited movement observed, the rupee remained under pressure amid subdued market activity and ongoing global headwinds. The trading range is expected to stay between 85.60 and 86.00 in the near term, as participants monitor international developments and market trends," he said.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.33 per cent lower at 109.03.

Brent crude, the global oil benchmark, fell 0.43 per cent to USD 75.60 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex settled at 720.60 points, or 0.90 per cent, down at 79,223.11 points, while the Nifty was lower by 183.90 points, or 0.76 per cent, at 24,004.75 points.

Foreign institutional investors (FIIs) offloaded Rs 4,227.25 crore in the capital markets on a net basis on Friday, according to exchange data.

The country's forex reserves dropped by USD 4.112 billion to USD 640.279 billion during the week ended December 27, the Reserve Bank said on Friday.