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The Indian rupee edged higher on Friday, aided by a broadly weaker dollar after U.S. inflation data boosted expectations of policy easing by the Federal Reserve, although dollar demand from importers capped further gains in the local currency.

The rupee closed at 83.5350 against the U.S. dollar, up from its close at 83.56 in the previous session. The local unit was largely flat week-on-week.

The dollar index was at 104.3 on Friday, on course for its second consecutive weekly loss, after U.S. economic data, including the consumer inflation print on Thursday, lifted hopes for a Fed rate cut later this year.

Investors are currently pricing in a nearly 93% chance of a reduction in rates in September, up from about 78% a week earlier, according to CME's FedWatch tool.

Most Asian currencies gained week-on-week as Fed rate cut hopes weighed on the dollar and U.S. bond yields.

The rupee's gains were capped on Friday due to sustained dollar demand from importers, including local oil companies, traders said.

Importers have "been on bid below 83.50 (on USD/INR) while there is little expectation that Reserve Bank of India will allow much of a rise above 83.60," a foreign exchange trader at a state-run bank said.

Dovish remarks from Fed officials could open up "some more downside (on USD/INR)," the trader added. Fed Chair Powell is scheduled to speak on Monday, followed by other policymakers during the week.

Meanwhile, dollar-rupee forward premiums rose on the day, aided by a decline in U.S. bond yields. The 1-year implied yield hit a more than one-month peak of 1.70% before edging lower.

Market participants now await U.S. producer price inflation data, due later in the day.

"We think another leg lower in the dollar is possible given markets' growing conviction on Fed easing, and (the dollar index) could retest the June 104.0 lows," ING Bank said in a note.