Stronger emerging market currencies, expected foreign fund inflows into IPOs and strong gains in domestic equities also supported the local unit.
At the interbank forex market, the domestic unit opened at 74.96 against the greenback and witnessed an intra-day high of 74.79 and a low of 75.02 during the day's trade. It finally ended at 74.91 a dollar.
On Tuesday, the rupee dropped by 6 paise to 75.13 against the US dollar amid concerns over the fresh impact of the new COVID variant on the economy.
The rupee has been under pressure over the last few trading sessions, as the detection of a new coronavirus variant re-ignited growth concerns and hurt risk appetite.
''Rupee started the month on positive note after upbeat economic data, stronger emerging market currencies and positive risk sentiments. Rupee is expected to add gains in coming days following strong dollar inflows from a series of IPOs,'' said Dilip Parmar, Research Analyst, HDFC Securities.
Near-term focus will remain on dollar inflows, risk sentiments, Asian currencies and crude oil prices, Parmar said, adding that ''from the level perspective, spot USDINR is expected to trade between 74.50 to 75.50.'' India's manufacturing sector activities gained further strength in November, and witnessed the strongest increase in production and sales since February on improving market conditions, a monthly survey said on Wednesday.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI), increased from 55.9 in October to 57.6 in November, signalling the strongest improvement in the health of the sector in ten months.
According to SBI research report Ecowrap, the country's gross domestic product (GDP) is likely to grow more than 9.5 per cent in fiscal 2021-22.
On the macro-economic front, India's GDP expanded by a better-than-expected 8.4 per cent in the July-September quarter to cross pre-pandemic levels.
The Union government's fiscal deficit was 36.3 per cent of the budget estimates at the end of October 2021, on the back of improvement in revenue collection. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, declined 0.03 per cent to 95.96.
Brent crude futures, the global oil benchmark, jumped 4.75 per cent to USD 72.52 per barrel.
On the domestic equity market front, the BSE Sensex surged 619.92 points or 1.09 per cent to end at 57,684.79, while the broader NSE Nifty jumped 183.70 points or 1.08 per cent to 17,166.90.
Foreign institutional investors were net sellers in the capital market on Tuesday, as they offloaded shares worth Rs 5,445.25 crore, according to exchange data.
According to Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd, in spite of a hawkish Fed, USDINR was not impacted as the market has priced in a hawkish Fed.
''India's economy is in a strong phase with new cases continuously falling. Strong GDP growth and better than expected core sector output are indications of that. Falling oil prices are a bonus. All in all, USDINR may continue to be in a range between 74.50 and 75.40 on spot over the near term,'' Banerjee said.