The rupee was at 83.46 against the U.S. dollar as of 09:40 a.m. IST, up from its previous close at 83.50.
Asian currencies gained, with the Korean won up nearly 1.7% and leading gains, while the Thai baht also rose 1%. The dollar index was at 104.2 after declining 0.7% on Wednesday.
The U.S. consumer price index rose 0.3% in April, lower than the 0.4% increase anticipated by economists polled by Reuters. Meanwhile, retail sales were flat month-on-month, well below the consensus expectations of a 0.4% rise.
The data prompted investors to raise the odds of a Fed rate cut in September to nearly 75%, up from 65% a day earlier, according to the CME's FedWatch tool.
However, Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday the U.S. central bank should keep policy rates on hold "for a while longer until we figure out where underlying inflation is headed".
U.S. bond yields dropped with the 10-year Treasury yield declining to 4.31%, its lowest in more than a month.
The rupee "should strengthen a bit, but don't think the move would be very sharp as INR would continue to underperform in times of broad USD short positions buildup," a foreign exchange trader at a private bank said.
Dollar-rupee forward premiums ticked higher with the one-year implied yield up 2 basis points at 1.70%, lifted by lower U.S. bond yields.
The rupee is unlikely to see sharp gains till it holds below 83.30, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
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