The yen slipped on Tuesday on news a Japanese chipmaker was buying a US peer for $6.7 billion, while sterling held onto overnight gains after the European Union's top negotiator raised hopes a Brexit deal can be struck in the coming weeks.
Most other major currencies stayed in tight ranges as investors awaited developments in international trade disputes, in particular on any US move to slap fresh duties on China amid heightened tension between the two economic giants.
Monday's reports that Michel Barnier, the EU's top negotiator, told a forum in Slovenia that it was "realistic" to expect a Brexit deal in six to eight weeks helped send the pound sharply higher to $1.3052, its highest level since Aug. 2.
Barnier's comments were seized on by markets as a signal the UK may avoid a disorderly no-deal Brexit. In recent weeks, sterling had been under pressure on worries that Britain would exit from the EU without any formal trading agreement.
On Tuesday, sterling rose about 0.1 percent to $1.3041.
"If the negotiations for Brexit go well it naturally becomes a tailwind for the pound," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
"If Britain achieves Brexit without problems, the advantages for the European Union are big as well."
The euro was almost flat at $1.1601. It advanced about 0.4 percent during the previous session, helped in part by an easing in concerns over Italian debt.
Against sterling, the single currency traded at 88.94 pence after slipping to a fresh one-month low of 88.91.
Policymakers at the Bank of England and European Central Bank are widely expected to leave their policy settings unchanged at their respective meetings on Thursday.
The dollar index, which tracks the greenback against a basket of six currencies, was nearly flat at 95.140, after losing 0.2 percent overnight.
News that Japanese chipmaker Renesas was buying US counterpart Integrated Device Technology for about $6.7 billion in cash weighed on Japan's currency. A US acquisition of this size "creates yen-selling and dollar-buying pressures", said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
The dollar rose 0.3 percent to 111.41 yen as investors also reduced some of their safe-haven holdings of the Japanese currency as the benchmark Nikkei 225 stock index rose more than 1 percent and on hopes of a Brexit deal. The Australian dollar was 0.15 percent higher at $0.7123, hovering near a more than two-and-a-half year low of $0.7097 reached during the previous session.
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