Reflecting nervousness over the prospect of the Federal Reserve tightening policy and event risk, traders stayed on the sidelines
The rupee settled almost flat at 67.06 against the US currency in restricted activity ahead of the US central bank's speech.
Overall mood remained fragile and fully focused on Federal Reserve Chair Janet Yellen's speech at Jackson Hole symposium later in the day, which is expected to give some clues on the future path of US rate hikes.
Reflecting nervousness over the prospect of the Federal Reserve tightening policy and event risk, traders stayed on the sidelines, a dealer said.
The domestic currency opened modestly higher at 67.02 a dollar compared to Thursday's closing level of 67.05 at the Interbank Foreign Exchange (Forex) market and struggled to make any headway.
It largely traded in a very tight range of 66.98 and 67.0750 due to alternate bouts of demand and supply transactions of dollars, before settling at 67.06, down by a mere one paisa.
The rupee had ended higher by 6 paise at 67.05 against the greenback on Thursday.
Meanwhile, RBI on Thursday announced a slew of changes in fixed income and currency markets such as allowing lenders to issue 'masala bonds' and to accept corporate bonds under the liquidity adjustment facility (LAF).
The RBI fixed the reference rate for the dollar at 67.0299 and for euro at 75.7371.
In cross-currency trades, the rupee drifted back against the pound sterling to close at 88.53 from 88.46 and declined further against the euro to end at 75.71 compared to 75.68 earlier.
It also softened against the Japanese yen to 66.75 from 66.74 per 100 yens.
Meanwhile, stock markets remained under selling pressure for the second-straight session. The BSE Sensex dropped 53.66 points to close at 27,782.25 while the broader Nifty fell 19.65 points to end at 8,572.55.
In the forward market, premium for dollar continued to trade weak on sustained receipts by exporters.
The benchmark six-month premium for January slipped to 166-168 paise from 169.5-171 paise and the forward July 2017 contract also dropped to 360-362 paise from 366.5-368 paise on Thursday.
On the global front, US dollar traded lower against the other major currencies as investors turned cautious before the keynote speech by Yellen. The US dollar index was down 0.08 per cent at 94.60 in early trade.