The British pound crawled off 20-month lows on Tuesday as Prime Minister Theresa May sought support from European leaders to change her Brexit deal, with investors weighing chances of a chaotic British exit from the European Union.
May met Dutch Prime Minister Mark Rutte and will meet German Chancellor Angela Merkel in a last ditch bid to save her deal before an EU summit on Dec. 13-14.
The British premier on Monday called off a parliamentary vote on her Brexit agreement to seek more concessions. That thrust Britain's exit from the EU into the unknown and saw the pound plunge to its lowest level since April 2017.
Possible outcomes include a disorderly no-deal Brexit, another referendum on EU membership, or a last-minute renegotiation of May's deal with Brussels.
Sterling was up 0.4% at $1.2615, a recovery of sorts after falling 1.6% against the dollar on Monday to as low as $1.2507.
"For investors, the decision to add to their shorts or take profits will depend on the signals we get from Prime Minister May's meetings," said Credit Agricole head of G10 FX research Valentin Marinov.
"What we will be hoping for is some clarity on what assurances the EU will be willing to offer," he added.
Weakness in sterling helped nudge the euro up 0.3% to $1.1387.
Concerns over protests in France against inequality and President Emmanuel Macron's economic reforms have limited the euro's gains recently.
Investors in the euro are also focused on the European Central Bank's economic assessment of the euro zone, due on Thursday.
The pound's slide has also helped the dollar, which recovered from a 2 1/2-week low against a basket of currencies. The dollar had fallen amid speculation the Federal Reserve would pause its rate increases sooner than previously thought.
The dollar index, a measure of its strength versus a group of six major peers, was down 0.3% at 96.952 after rallying 0.75% on Monday. At one stage in overnight trade, it had fallen to 96.364, its lowest since Nov. 22.
Falling U.S. bond yields will eventually force the dollar into a downtrend, but probably not at this moment," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
The 10-year Treasury note's yield has dropped to a three-month low this week, with dovish comments from Fed officials and soft U.S. economic data reinforcing views on a pause in the tightening cycle.
In emerging markets, the Indian rupee was jolted after Reserve Bank of India Governor, Urjit Patel, resigned abruptly on Monday, after a months-long dispute with the government over policy that has raised concern about the bank's independence.
Indian rupee forwards fell more than 1% on Monday, their biggest daily slump in more than five years. (Reuters)