Sterling edged up against the dollar on Thursday, reversing earlier losses as political chaos unfolded in the UK and as a Bank of England official's comments prompted a further scaling back of bets on a full percentage-point rate hike in November .
British Prime Minister Liz Truss is meeting Graham Brady, the head of the 1922 Committee of Conservative lawmakers, a source in Truss's Downing Street office said.
Truss is battling to retain her grip on power, a day after a second top minister quit and rowing and jostling broke out among her lawmakers in parliament.
Against this backdrop, the pound rose 0.5% to $1.1260 , having earlier traded 0.4% down. The pound was down just 0.13% at 87.23 pence per euro , pulling away from one-week low at 87.57 pence.
"Given how the (finance minister Jeremy) Hunt policies have steadied the UK markets, I don't think anybody seriously expects him to be replaced, regardless of who replaces Truss," said Stuart Cole, head macro economist at Equiti Capital.
After only six weeks in the role, Truss's premiership has seen a bond market rout and a U-turn on almost all of her fiscal policy programme. Wednesday saw her lose her interior minister, less than a week after she fired her finance minister. Another Conservative Party lawmaker meanwhile said they had submitted a letter of no confidence in Truss.
Analysts said a dialling back of aggressive rate hike bets following comments from the BoE's Ben Broadbent also weighed on sterling.
Broadbent said the BoE is poised to respond to changes in Britain's tax and spending policies but it remains to be seen if interest rates go up as much as investors have been expecting.
Investors reined in further their bets of a full percentage-point interest rate increase by the BoE next month following the comments. Yields on British government bonds or gilts also fell.
The 30-year gilt yield was down 6 basis points on the day at 3.93%.
"Broadbent noted that the policy rate may not need to go up as much as markets are pricing and short-term gilt yields and sterling both declined," said Colin Asher, senior economist at Mizuho Bank.
The BoE is tasked with bringing down soaring inflation, with data on Wednesday showing food prices pushed British inflation into double digits last month.
