The rupee dropped 5 paise to 85.69 against the US dollar in early trade on Wednesday, the first session of 2025, as the strength of the American currency in the overseas market and persistent foreign fund outflows weighed on the local unit.

Forex traders said the rupee has been under continued pressure amid the Federal Reserve's cautious stance on rate cuts and the "Trump factor" driving up the dollar index (DXY) and US 10-year bond yields.

With today being the last day for the rollover of positions, the rupee is expected to remain volatile, expert Anil Kumar Bhansali said.

At the interbank foreign exchange, the local unit opened on a weak note and witnessed an intra-day low of 85.59 and a high of 85.43 against the American currency

The Indian rupee weakened against the US dollar on Monday, driven by dollar demand from importers, foreign fund outflows and a muted trend in domestic equities.

On Friday, the rupee closed at 85.54, marking its steepest single-day decline since February 2023. The domestic currency had depreciated sharply, hitting a new all-time low of 85.81 during the last session. The rupee opened at 85.32 per dollar and closed at 85.26 on Thursday.