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 The Indian rupee closed higher on Wednesday, aided by likely inflows and lower U.S. bond yields, while state-run banks' dollar appetite constrained the local currency's gains after it touched the strongest level in nearly three weeks.

The rupee closed at 83.1850 against the U.S. dollar, up 0.16%, compared with its previous close at 83.3150. The currency rose to an intra-day high of 83.16, its strongest level since March 21.

The dollar index edged lower to 104.06. Asian currencies were mixed, with the Thai baht down 0.2% while the Indonesia rupiah gained 0.3%.

Earlier in the session, "bunched-up dollar inflows" on account of the currency and debt markets being shut on Tuesday aided the rupee, a foreign exchange trader at a foreign bank said.

But dollar bids from state-run banks eroded some of the early gains, the trader added.

U.S. consumer inflation data due later in the day remained the key focus as it is expected to impact expectations of when the Federal Reserve would start easing policy rates.

Odds of a June rate cut by the Fed have declined to 54%, down from about 73% a month earlier, according to CME's FedWatch tool.

The inflation data is expected to show core consumer price inflation (CPI) rose 0.3% month-on-month in March, down from the 0.4% rise in the previous month, according to economists polled by Reuters.

A substantial upside surprise on U.S. inflation data could push the rupee to weaken towards 83.30-35, said Gaurang Somaiya, a foreign exchange research analyst at Motilal Oswal Financial Services.

Investors will also keep an eye on the minutes of the Fed's March policy meeting and remarks from Fed policymakers later in the day.

Indian financial markets will be closed on Thursday for a local holiday.