The pound edged up this morning after turbulence following the defeat of British Prime Minister Theresa May's European Union exit deal.
But investors are braced for more volatility ahead of additional Brexit proceedings.
The British Parliament yesterday rejected May's deal to quit the European Union for a second time, deepening the country's political crisis days before the planned departure date on March 29.
Politicians will now vote later today on whether Britain should quit the world's biggest trading bloc without a deal.
If such a "no-deal" exit plan is rejected, another vote will be held tomorrow on whether to extend the March 29 departure date.
Analysts said that the UK parliament is likely to reject a 'no-deal Brexit' plan, and the March 29 exit date subsequently being extended now looks to be a distinct possibility.
The pound is thus stabilising on such expectations for now, they added.
But they said that considering how sensitive the pound is to headlines, they expect the currency to gyrate again if the door is opened for an extension of the March 29 exit deadline.
Sterling was up 0.2% at $1.3089 and stuck to a narrow range. The currency had lost 0.65% the previous day, when it fluctuated widely between $1.3290 and $1.3005.
The EU's 28 government leaders will decide at a March 21-22 summit whether to extend the negotiating period beyond the current exit date on March 29.
Meanwhile, the dollar was on the back foot after data yesterday showed US consumer prices rose at a slower-than-expected pace.
The euro was a touch lower at $1.1283 after rising 0.4% the previous day as the greenback sagged on the lacklustre US inflation data.