The British pound rebounded on Tuesday as fears faded that the departure of two ministers would prompt an immediate challenge to Prime Minister Theresa May's leadership, while the yen fell against the dollar as investors bid up riskier assets.
Sterling turned positive on the day and rose to $1.3272 , having fallen to as low as $1.3189 on Monday, after Mrs May's foreign minister and Brexit negotiator quit in protest at her plans to keep close trade ties with the European Union.
Conservative policymakers said Mrs May is probably safe from a leadership challenge despite the resignations and that helped the beleaguered currency regain some ground, according to Reuters.
Still, the departures undermined her own proclamation of cabinet unity last Friday.
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"The market is worried that yesterday's resignations could be a sign of major instability within the British government. However, we see little indication of that and assume May will survive and restart negotiations with Brussels ... sterling should correct its losses," said Commerzbank FX analyst Esther Maria Reichelt.
Markets still expect the Bank of England to hike rates at its next policy meeting on August 2, but analysts warn a full-blown political crisis could dent those expectations.
In opening trade on Tuesday, London edged higher despite upheaval over Mrs May's post-Brexit plan, AFP reported.
In initial deals, the British capital's benchmark FTSE100 index gained 0.1 per cent to 7,695.37 points compared with Monday's closing.
In the euro zone, Frankfurt's DAX 30 won 0.3 per cent to 12,580.31 points and the Paris CAC 40 added 0.2 per cent to 5,410.19.