The rupee weakened sharply against the US dollar on Monday amid sparse trading volumes as some foreign banks purchased the greenback, likely on account of overseas investors exiting the domestic market, dealers said.

The domestic currency closed at 81.62 per US dollar versus 81.34 at previous close.

Banks purchasing the US currency on behalf of importers looking to lock in relatively lucrative levels after the recent sharp appreciation of the rupee also dragged the domestic currency lower on Monday, dealers said.

Trade volumes were thin on account of US markets being closed for Martin Luther King Day.

“Today was a dollar holiday so anyway the supply (of dollars) was muted and the demand was still there. That’s why the movement has become a little more pronounced today (Monday); because the volumes were lower,” said Bhaskar Panda, HDFC Bank’s executive vice-president of overseas treasury.

“There were some FII outflows as well and some importer dollar purchases. I think 81.50-82.50/$1 is where the range should be for now,” he said.

The rupee gained 1.7 per cent against the dollar in the previous week as economic data in the US–including that showing slowing inflation–strengthened hopes of the Federal Reserve reducing the size of rate hikes.

With the market turnover being low, the demand for dollars led to the rupee weakening past the technical level of 81.50 per US dollar, exacerbating the depreciation of the local currency, said a dealer with a state-owned bank.

“As the dollar index recovered from 101.76 to 102.52 it was evident that the market was buying dollars after a sell off from 104 levels. The Nifty was down by 90 points while Dow Jones Futures were down by around 100 points. Evidence of risk aversion was seen in the markets. Brent oil was stable at $ 84.61 per barrel,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.

“The RBI stood between the rupee’s appreciation and did not allow it to rise beyond 81.23 after which oil companies came in to buy dollars and ensured that the rupee weakened to 81.73 levels,” he said.