The British pound held firm in early Asian trade on Thursday, after making its biggest gains in seven months the previous day, following comments from the European Union's chief negotiator offering Britain close ties after Brexit.

The pound surged as fears that Britain could go through a hard Brexit eased after Michel Barnier signalled an accommodative stance towards London in ongoing talks. Barnier said that the bloc was prepared to offer Britain a partnership, though no “single market a la carte”, which improved risk sentiment.

Sterling rose to a four-week high of $1.3039, extending its gains after surging more than 1.2 per cent overnight, the largest daily gain since January 24.

The dollar index against a basket of six major currencies struggled near a four-week low of 94.434 touched on Tuesday, dragged down by the pound's rally. The euro was steady at $1.1706 after edging up 0.1 per cent the previous day. The dollar was flat at 111.71 yen after rising 0.4 per cent overnight.

“The dollar has been falling over the past these two weeks,” said Tohru Sasaki, head of markets research at JPMorgan Chase Bank in Tokyo. “As investors focus shifted to NAFTA and Brexit negotiations, the dollar didn't get much boost from weak EM currencies.”

The foreign exchange market still kept a wary eye on the Turkish lira which fell roughly 3 per cent to a two-week low the previous day amid lingering concerns about the country's currency crisis.

Other struggling emerging market currencies also drew attention, with Argentina's peso slumping overnight to a record low versus the dollar with investor confidence towards President Mauricio Macri evaporating quickly. The International Monetary Fund said it was studying a request from Argentina to speed up disbursement of a $50 billion loan programme, with the peso collapsing.

The New Zealand dollar fell as much as 0.82 per cent to $0.6660 after weak business confidence data for August.

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