The rupee appreciated 10 paise to 81.54 against the US dollar in early trade on Friday as foreign fund inflows and a weak greenback in overseas markets boosted investor sentiments.
At the interbank foreign exchange, the domestic unit opened up at 81.59 against the dollar, then gained further ground to quote 81.54, registering a gain of 10 paise over its previous close.
In the previous session on Thursday, the rupee depreciated 38 paise to 81.64 against the dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.17 per cent to 106.51.
In the domestic equity market, the 30-share BSE Sensex was trading 88.29 points or 0.14 per cent higher at 61,838.89, and the broader NSE Nifty climbed 20.10 points or 0.11 per cent to 18,364.
Foreign Institutional Investors (FIIs) were net buyers in capital markets as they bought shares worth ₹618.37 crore on Thursday, according to exchange data.
Brent crude futures, the global oil benchmark, rose 0.61 per cent to $90.33 per barrel.