The Indian rupee fell to a one-week low on Thursday as a jump in oil prices and little progress in U.S.-Iran talks raised concerns that inflation could prompt further global rate hikes.

Dollar sales by state-run banks, likely on behalf of the Reserve Bank of India, limited losses and kept the rupee above 96 per dollar.

The currency ended at 95.9550 per dollar, down 0.2% for the day. Earlier in the day, the currency had slipped to 95.96, its lowest level since September 17.

The Iran conflict has weighed on emerging market currencies as elevated oil prices fan inflation in energy-importing economies and strain fiscal health.

A surge in global bond yields has added to the pressure with U.S. Treasury yields hitting multi-year highs as traders added to wagers on rate hikes by the Federal Reserve.

New York Federal Reserve President John Williams said on Thursday it was reasonable to think that the U.S. central bank might need to raise interest rates again before the end of the year to help bring down inflation risks.

The dollar index was a tad higher at 101 while Asian currencies weakened between 0.1% to 0.5%. Indian equities, meanwhile, endured their worst single day drop since early July.

"Periods of low FX volatility always end with a bang and current market conditions are certainly consistent with an increased risk of that scenario materialising. High yielders across EM would suffer most while the yen and Swiss franc would outperform," MUFG said in a note.

The Indian rupee and Indonesian rupiah are among the high-yielding currencies in Asia and both were under pressure on Thursday.

Despite the headwinds from oil prices and higher global bond yields, near-tenor volatility expectations for the rupee have remained subdued with the 1-month implied volatility gauge hovering around the 4% mark.