The pound languished near 20-month lows against the dollar on Tuesday after British Prime Minister Theresa May postponed a crucial vote on her Brexit deal, rasing the risk of a chaotic exit from the European Union.

May had on Monday postponed a parliamentary vote, which was due to take place on Tuesday, on her Brexit deal to seek more concessions. The move stoked more uncertainty as Britain now faces Brexit without a deal, a last-minute agreement or another EU referendum.

Sterling crawled up 0.1 per cent to $1.2574 after slumping 1.3 per cent the previous day, when the currency brushed $1.2507, its lowest since April 2017.

The pound's slide was a boon for the dollar, which rallied back from a 2-1/2-week low against a basket of currencies initially driven by a growing view the Federal Reserve could pause its rate hike cycle sooner than previously thought.

The dollar index, a measure of the greenback's strength versus a group of six major peers, was a touch lower at 97.092 after rallying 0.75 per cent on Monday. At one stage in overnight trade it had fallen to 96.364, its lowest since November 22.

“Falling US yields will eventually nudge the dollar into a downtrend, but probably not at this moment,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“There just isn't enough demand for the yen, which is less of a safe haven, and the euro, with the political concerns in Europe. And there is of course the pound which is burdened with Brexit problems.”

The 10-year Treasury note yield has dropped to a three-month low this week, with dovish comments from Fed officials and soft US data further sharpening views on an imminent pause in the tightening cycle.

The euro nudged up to $1.1365 after shedding 0.2 per cent on Monday. The common currency did gain against the struggling pound, although concerns over violent protests in France against President Emmanuel Macron's economic reform limited its gains. The dollar dipped 0.25 per cent to ¥113.02 after advancing 0.5 per cent overnight.

“It is difficult to draw a very bearish scenario for the dollar as talk of the US economy slipping into recession and the Fed switching to monetary easing from tightening seems too far fetched at this point,” said Koji Fukaya, president at FPG Securities in Tokyo.

“Whenever there is a global risk-off event, the dollar will find demand - as long as the risk aversion does not originate in the United States.”

The Indian rupee was jolted after Reserve Bank of India Governor, Urjit Patel, resigned abruptly on Monday after a months-long tussle over policy with the government that has raised concerns about the bank's independence.

Indian rupee forwards fell more than 1 per cent on Monday, posting their biggest daily slump in more than five years. The Australian dollar rose 0.1 per cent to $0.7197 after slipping on Monday to a one-month low of $0.7170.

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