In a volatile session at the interbank foreign exchange, the local unit opened at 68.55 per dollar, but soon recovered lost ground and touched a high of 68.40, as Finance Minster Nirmala Sitharaman presented her maiden budget in Parliament.
The domestic currency finally ended at 68.42 against the greenback, higher by 8 paise over its previous closing.
The rupee on Thursday settled at 68.50 against the US dollar.
On a weekly basis, the Indian currency has gained 61 paise.
Speaking on the rupee movement, Lakshmi Vilas Bank Head Treasury R K Gurumurthy said "fiscal deficit and gross borrowings are in line with pre-budget expectations. Additionally, some part of borrowings within the gross borrowings is estimated to be raised overseas. So pressure on domestic liquidity is much less."
The government in the interim Budget in February had projected a fiscal deficit of 3.4 per cent for the current fiscal.
In the full Budget for 2019-20, Finance Minister Nirmala Sitharaman announced reduction in the fiscal deficit target.
"The fiscal deficit this year is 3.3 per cent brought down from 3.4 per cent," she said while presenting the Budget.
Dismissing apprehension over meeting fiscal deficit target of 3.3 per cent of the gross domestic product (GDP), the finance ministry Friday said the lower target is realistic as the government is expecting net additional revenue of Rs 6,000 crore over the interim Budget estimates.
Lakshmi Vilas Bank's Gurumurthy further said "Indian rupee can gain a bit on the back of this development. However, most of Friday's reactions could reverse as timing is key".
Since the interim Budget on February 1, the rupee has appreciated 283 paise.
"Bond yields had also fallen, as government signalled that it is seeking external borrowings, especially as global interest rates remain relatively low," Anand James, Chief Market Strategist, Geojit Financial Services said.
The government would start raising a part of its gross borrowing programme in the external markets in foreign currencies, the Finance Minister further announced.
She said India's sovereign external debt to GDP level is among the lowest globally at less than 5 per cent.
"The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market," Sitharaman said.
Further, Geojit's James noted that "Fed Chairman Jerome Powell's upcoming semi-annual testimony should keep rupee tentative against the US dollar next week".
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.17 per cent to 96.93.
Meanwhile, brent crude futures, the global oil benchmark, rose 0.57 per cent to trade at USD 63.66 per barrel.
The 10-year government bond yield was at 6.69 per cent on Friday.
The BSE Sensex finished 394.67 points, or 0.99 per cent, lower at 39,513.39. On similar lines, the broader NSE Nifty sank 135.60 points or 1.14 per cent, to 11,811.15.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 68.8545 and for rupee/euro at 77.6881. The reference rate for rupee/British pound was fixed at 86.5721 and for rupee/100 Japanese yen at 63.86.