The Indian rupee strengthened by 12 paise to 74.47 against the US dollar in early trade on Thursday, as a dovish US Fed pulled the greenback lower.
At the interbank foreign exchange, the domestic unit opened at 74.48 against the dollar, then inched higher to 74.47, registering a gain of 12 paise over its previous close.
On Wednesday, the rupee had settled at 74.59 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading unchanged at 92.40.
"The US dollar Index crashed on Wednesday after the Federal Reserve Chair Jerome Powell told Congress that the US economy was still a ways off from levels the central bank wanted to see before tapering its monetary support," Reliance Securities said in a research note.
On the domestic equity market front, BSE Sensex was trading 127.34 points or 0.24 per cent higher at 53,031.39, while the broader NSE Nifty advanced 30.70 points or 0.19 per cent to 15,884.65.
Forex traders said foreign fund outflows and firm crude oil prices could weigh on investor sentiment and cap the appreciation of the local unit.
Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth Rs 1,303.95 crore, as per exchange data.
Global oil benchmark Brent crude futures declined 0.76 per cent to USD 74.19 per barrel.