The rupee is at 54.25/26 after dropping to a more than one-month low of 54.2250, its highest since December 13 and stronger compared to its previous close of 54.69/70.
State-run oil marketing companies can now raise diesel prices in line with increases in global crude oil prices, Oil Minister Veerappa Moily said on Thursday, a move that could help the government reduce its vast subsidy bill.
Traders said the move would also help contain the government's wide fiscal deficit, which is a positive for the rupee.
The euro rose to a 9-1/2 month high against the sterling on Thursday as worries about the poor UK economic outlook contrasted with better sentiment towards the single currency.
