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Data showed the country's wholesale price-based inflation eased to an eight-month low in January as food prices moderated, offering some relief to policymakers who have long battled to get a handle on surging prices.
The interim budget on Monday will be the next key thing to watch out for the markets.
The finance minister will be walking a tightrope when he presents the interim budget for the coming fiscal year on Monday, doling out more funds to woo voters and tax cuts to support industry while projecting a lower fiscal deficit before elections.
"The market will look out for the government's expenditure plans. Expectation is for higher spending but if it is really large, all markets including rupee will fall," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with Andhra Bank.
Traders broadly expect the rupee to continue to trade in a 62 to 63 per dollar range next week, barring any major surprises in the budget.
The partially convertible rupee closed at 61.925/935 per dollar, after hitting 61.92, its strongest since January 23 and up 0.8 percent on the day. This is the rupee's biggest single-day gain since January 28 when it rose 0.9 percent.
The unit closed at 62.42/43 on Thursday. On the week, the rupee rose 0.6 percent, its second straight weekly gain.
Gains in other Asian currencies following the weak U.S. sales data which has raised some expectations for a slower wind-down of the U.S. monetary stimulus also aided the rupee.
The BSE Sensex ended higher, led by telecommunication services providers and software companies ahead of the interim budget.
Traders will continue to monitor shares for cues on the direction of foreign fund flows.
In the offshore non-deliverable forwards, the one-month contract was at 62.24 while the three-month was at 63.12.
