The Indian rupee rebounded from session lows to gain for the day after the economy grew more strongly-than-expected in the April-June quarter, while a late surge in the euro ahead of a speech from Federal Reserve Chairman Ben Bernanke also helped.
India said on Friday gross domestic product grew 5.5 percent in the previous quarter, slightly better than 5.3 percent expected by analysts, signalling the worst may be over for the economy.
The rupee also benefitted after global risk assets rallied. The euro hit an eight-week high ahead of a speech from Bernanke that many hope will hit at a resumption of asset purchases by the U.S. central bank.
Traders warn the rupee is vulnerable to fall and break out of its range-bound trading in August, as political gridlock stall policy reforms and deficient monsoons rainfalls are expected to add to inflation.
"The absence of policy reforms and further bad news over coal deals would make it very difficult for the central government to boost the investment cycle and stimulate growth," said Abhishek Goenka, chief executive at India Forex Advisors.
"The overall scenario looks bleak and we still target USD/INR to hit 57 plus levels again in the medium term."
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The partially convertible rupee closed at 55.52/53 per dollar as per the SBI closing rate, compared to its 55.63/64 close on Thursday and well off its session low of 55.7750.
The rupee has been trading flat for the month, ending down 0.04 percent for the week and up 0.2 percent for August.
In the near-term traders said they expect global risk factors to influence the rupee most.
The one-month offshore non-deliverable forward contracts were quoted at 55.83 while the three-month was at 56.48.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 55.78, w i th a total traded volume at $2.6 billion.