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.
India's 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 Jan. 23 and up 0.8 per cent on the day.
This is the rupee's biggest single-day gain since Jan. 28 when it rose 0.9 per cent.
The unit closed at 62.42/43 on Thursday. On the week, the rupee rose 0.6 per cent, its second straight weekly gain.
Gains in other Asian currencies following the weak US sales data which has raised some expectations for a slower wind-down of the US monetary stimulus also aided the rupee.
Indian shares 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.
Raghuram Rajan: A lucky mascot for the rupee
Rupee seen to move around 63/USD in near term
Rupee has recovered smartly to about right level: Chidambaram
Rupee gains as trade gap shrink
Valentine's Day Special: Bollywood's real life love stories