Pound holds overnight gains after British PM survives vote on her leadership

Any respite for the pound was expected to be short-lived, however, as a mutiny by more than a third of her lawmakers signalled she was no nearer to passing her plan to leave the European Union.

The pound largely held onto overnight gains on Thursday after British Prime Minister Theresa May pulled through a no-confidence vote on her leadership that bought her more time to try to sell her unpopular Brexit deal to a deeply divided parliament.

The euro edged higher against the dollar after Italy lowered its deficit target for next year and said it expected the European Commission to accept its new 2019 budget proposal.

The dollar index, which measures the greenback against six major rivals, was steady at 97.032. It had fallen from a near one-month high overnight, losing almost half a per cent, its steepest drop in two weeks.

In a secret ballot, May won the support from 200 of 317 Conservative lawmakers.

Any respite for the pound was expected to be short-lived, however, as a mutiny by more than a third of her lawmakers signalled she was no nearer to passing her plan to leave the European Union.

"Just after the actual result was announced, profit-taking dominated, (but) sterling stopped appreciating," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"That shows it's not bad news, but it doesn't fix the Brexit issue. In that sense, uncertainty continues."

Sterling held steady at $1.2627 in early trade on Thursday. It had bounced off a 20-month low of $1.2477 during the previous session, ending 1.1 percent higher on the day in the aftermath of the vote.

With Britain due to leave the EU on March 29, parliament's opposition has suddenly opened up possibilities including a potentially disorderly exit with no deal or even another referendum on membership.

The euro edged higher to $1.1371 after tacking on nearly 0.5 percent during the previous session.

The single currency's moves were capped by caution ahead of a closely-watched policy meeting by the European Central Bank later in the day.

The ECB is all but certain to formally end its lavish bond purchase scheme on Thursday but will take an increasingly dim view on growth, raising the likelihood that its next step in trimming stimulus will be delayed.

Against the Japanese yen, the dollar rose 0.1 per cent on the day to 113.34 yen.

China's offshore yuan held steady amid growing signs of a possible easing in tensions in the country's trade dispute with the United States.

Traders said China on Wednesday made its first major purchase of soybeans since U.S. President Donald Trump and his Chinese counterpart Xi Jinping hammered out a temporary trade war truce earlier this month.

The offshore yuan traded at 6.8706 per dollar, after strengthening almost half a per cent from 6.8980 per dollar during the previous session.

Mizuho's Yamamoto said he expected the yuan to remain "sandwiched" between strong and weak factors as the currency's moves are not just driven by developments in the Sino-U.S. trade war but also by fears of a cyclical and structural slowdown in China's economy.

"To cope with the slowdown, the Chinese authorities need a not-strong renminbi, but it can't weaken too much -- above seven renminbi per dollar," Yamamoto said.

He added while China's authorities don't want a very strong renminbi, he did not expect Chinese interest rates to rise anytime soon.

"The interest rate differential between the United States and China will weigh on the renminbi," he said.

China's central bank faces a test next week if the U.S. Federal Reserve raises interest rates as widely expected.

(With inputs from agencies.)