The Indian rupee is expected to open modestly stronger on Friday, benefiting from a broadly weaker dollar that was weighed down by positional adjustments as traders recalibrated their expectations about U.S. President Donald Trump's policies.

The 1-month non-deliverable forward indicated that the rupee will open at around 86.60 to the U.S. dollar compared with 86.66 in the previous session.

The dollar index declined to a more-than-two-month-low of 106.3 on Thursday and was last quoted a tad higher in Asia trading. The offshore Chinese yuan rose to a peak of 7.23, its highest level since late November, before trimming gains.

U.S. President Donald Trump's remark about a possible trade deal with China and a dip in U.S. bond yields have both weighed on the dollar, DBS Bank said in a note.

Comments from U.S. Treasury Secretary Scott Bessent that the administration had no plans to increase sales of long-dated debt weighed on U.S. bond yields on Thursday.

The rupee should benefit from a broadly softer dollar but could face resistance near 86.50, a trader at a mid-sized private bank said.

"On the flip side, state-run banks have been active around 86.90 levels and above (on USD/INR), which should keep a lid on gains," the trader added.

The local currency had climbed to a peak of 86.47 last week, largely on the back of heavy-handed intervention by the Reserve Bank of India.

While the prevailing bearish bias on the rupee has eased - as signalled by a reduction in short bets per a Reuters poll - portfolio outflows remain a sore point for the local currency.

Overseas investors have sold over $11 billion of local stocks over 2025 so far on a net basis. "If the dollar weakness persists, it may help ease the equity outflows and help out the rupee some more," a second trader at a private bank said.