The rupee rose on Friday to post a 0.6 percent gain for the week, helped by a strong month of foreign inflows, although sentiment remained cautious ahead of domestic current account data and the continuing negotiations over the U.S. "fiscal cliff."
Data due on Monday may show the country's current account deficit soared to a record high in the September quarter on high non-oil imports after narrowing in the June quarter, which may further raise concerns at a time when economic growth has slowed.
However, the most immediate concern for global currency markets remains the U.S. budget negotiations as U.S. President Barrack Obama was to meet congressional leaders from both parties on Friday to revive talks.
"There is no reason for the rupee to appreciate with the current account deficit likely to be 3.8-4 percent of GDP in the current fiscal," said Param Sarma, chief executive at NSP Forex.
"The rupee is being held stable by huge capital inflows, otherwise it would have slipped to 55.70-80 levels."
The partially convertible rupee closed at 54.7550/7650 per dollar versus its previous close of 54.93/94. For the week, it rose 0.6 percent.
Dealers said the rupee rose on Friday in thin year-end holiday trading, largely mirroring gains in local shares which ended 0.6 percent up.
Capital inflows into Indian equities have topped $24 billion in 2012, the second highest in the last five years. December has also been a strong month, with inflows of over $4 billion.
In the offshore non-deliverable forward market, the one-month contract was at 55.10 while the three-month was at 55.63.
In the currency futures market, the most-traded near-term dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange closed at around 55.11 with a total traded volume of $3.4 billion.