The rupee notched up its biggest single-day gain in three weeks on Friday boosted by inflows delayed by a strike that curtailed trading over the last couple of sessions, but investors were jittery ahead of the crucial 2013/14 budget next week.
Investors are focusing on the budget, which will be keenly watched to see how Finance Minister P. Chidambaram balances the tightrope walk between fiscal discipline and populist spending ahead of elections in 2014.
However, global risk sentiment will also be important, as the dollar surged this week on doubts about just how long the U.S. Federal Reserve will keep its quantitative easing in place.
"If the numbers are right in the budget, and seen as realistic, then we will see rupee rally below 53.60," said Moses Harding, head of asset liability management at IndusInd Bank.
The partially convertible rupee closed at 54.175/185 per dollar versus its previous close of 54.47/48. It rose 0.1 percent in the week, snapping two weeks of losses.