The rupee strengthened by 18 paise to close at 81.18 (provisional) against the US dollar on Friday due to widespread dollar weakness.
However, weak domestic equities and a jump in crude oil prices limited the sharp gains for the local currency, forex traders said.
At the interbank forex market, the local unit opened strong at 81.24 and closed for the day at 81.18 (provisional), registering a rise of 18 paise over its previous closing price.
During the trading session, the local unit witnessed an intra-day high of 81.09 and a low of 81.28 against the American currency.
On Thursday, the rupee had closed at 81.36 against the US dollar.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.21% to 102.26.
Global oil benchmark Brent crude futures rose 0.48% to $86.57 a barrel.
According to Anuj Chowdhary, research analyst at Sharekhan by BNP Paribas, a soft US dollar on Thursday and FII inflows appreciated the Indian rupee on Friday.
“The dollar declined on growing odds of a 25-bps rate hike by the FOMC following disappointing economic data coming in from the US,” Mr Chowdhary said.
US Federal Reserve Vice Chairman Lael Brainard indicated that the US Fed could hike rates at a slower pace of 25 bps at the next Federal Open Market Committee (FOMC) meeting in February and keep inflation at a longer high to moderate. Rates are expected to be maintained.
“We expect the rupee to trade with a positive bias on a weak tone against the greenback. However, concerns over global economic growth and a rally in crude oil prices may cap the upside.
“Traders can focus on the current domestic sales data and comments from FOMC members. USD/INR spot price is expected to trade in the range of ₹80.50 to ₹81.80,” said Mr. Chaudhary.
On the domestic equity market front, the 30-share BSE Sensex declined 236.66 points, or 0.39%, to close at 60,621.77, while the broader NSE Nifty declined 80.20 points, or 0.44%, to 18,027.65.
Foreign institutional investors (FIIs) were net buyers in the capital market on Thursday as they bought shares worth ₹399.98 crore, according to exchange data.