The pound nursed losses early on Wednesday on fresh concerns about the possibility of a “no-deal” Brexit, while the dollar held steady ahead of the Federal Reserve's policy decision.

Sterling was little changed at $1.3078 but retreated 0.7 per cent overnight as lawmakers rejected a proposal to give parliament a path to prevent a potentially chaotic hard exit. Britain is due to leave the EU on March 29.

Last week, the pound hit $1.3218, its highest since mid-October, on hopes that London might avoid a no-deal departure from the European Union.“It is difficult to tell what's next for the pound. But the March 29 Brexit deadline will likely be extended, and the focal point is on when and how such an extension is decided upon,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“For now focus shifts back to key events with more consequences for the dollar, such as the FOMC (Federal Open Market Committee) meeting, US-China trade talks and US jobs report,” Ishizuki said.

Later on Wednesday the Fed ends a two-day policy meeting at which it is expected to leave interest rates unchanged having raising them four times last year. Attention shifts to its policy outlook as the Fed has signalled a slower pace of rate increases this year with some speculating it might pause its tightening cycle soon.

Chinese Vice Premier Liu He will hold the next round of US trade negotiations in Washington on Wednesday and Thursday while the closely-watched US jobs report will be released on Friday.

Against the pound the euro was slightly lower at 87.41 pence having surged 0.8 per cent on Tuesday. The single currency was steady at $1.1435 after brushing a two-week high of $1.1450 overnight.

The dollar index against a basket of six major currencies was little moved at 95.805 following a slip to a two-week low of 95.620 overnight after US Treasury yields declined ahead of the Fed's policy statement. The greenback was flat at 109.41 yen after posting modest gains the previous day.