The rupee was at 82.8450 to the U.S. dollar at 12:24 p.m. IST, up from 82.9225 in the previous session.
The last time the rupee had printed a daily decline was on Jan. 2 when it was at 83.35.
Investors have piled on to bets that the rupee will rally, boosting the currency.
"I am sure that this has been a surprise to many people. A number of supports (on USD/INR) have been taken out and more importantly, we are seeing decent-sized moves," an FX trader at a bank said.
The USD/INR one-year implied forward rose to 1.93%, now up 18 basis points this month.
The fall in U.S. Treasury yields has pushed forward premiums higher. The two-year U.S. yield dipped more on Friday after the U.S. wholesale inflation data propped up bets that the Fed will cut rates in March at each successive meeting this year.
The odds of a Fed rate cut at the March meeting are now at near 80% and a total of 160 bps of rate cuts have been priced in for the year.
"(US) rate cut probabilities could determine the next leg in the rupee move," Srinivas Puni, managing director at QuantArt Market Solutions, said.
The focus this week will be on Fed Governor Christopher Waller's speech on Tuesday.
"Widely considered one of the more hawkish Fed members, Waller's last speech in late November was an important part of the market's belief that the Fed will lower its policy rate this year. His 'pivot' was a preview for the more meaningful shift at the December Fed meeting," HSBC Bank said in a note.
(Reporting by Nimesh Vora; Editing by Sohini Goswami)
By Nimesh Vora
