Sterling recovered some of the losses suffered after two ministers quit over the UK government's Brexit plans.
Markets expect Theresa May to survive as prime minister to start negotiating her blueprint with the European Union.
The pound only briefly remained in positive territory today, however, after official gross domestic product data was in line with forecasts and a stronger dollar weighed on the currency.
The resignations of Foreign Secretary Boris Johnson and Brexit minister David Davis shattered May's attempt at presenting a unified cabinet approach for life after Britain leaves the European Union.
May had unveiled her hard-fought and long-awaited Brexit blueprint last Friday.
The pound tumbled more than a cent to below $1.32 yesterday amid speculation that May would face a leadership challenge, plunging Britain into deeper political turmoil less than nine months before it is to exit the EU in March 2019.
May's office said she would fight any challenge to her leadership and at a meeting with her Conservative Party lawmakers she was cheered and applauded by many.
Even if May is safe for now, the big question for markets is whether Brussels will go along with her plan as a new round of negotiations begin later this month.
Markets had welcomed May's proposals as they retain close trade ties with the EU.
"On our baseline, both the eurosceptics in the Conservative Party and the EU's Brexit negotiators in Brussels give Ms May's Chequers proposal the benefit of the doubt - for now," said analysts at Goldman Sachs.
The analysts, however, said risks to the baseline had risen. Parliamentary arithmetic could frustrate May's ability to win legislative approval for her plan and the EU may demand more concessions from Britain, angering pro-Brexit ministers.
Sterling rose to as high as $1.3301 - roughly where it was on Friday before the resignations - until the weaker data and rallying dollar knocked it back to $1.3234, down 0.2% on the day.
Against the euro sterling held on to its gains, spurred on by weakness in the common currency. The pound stood 0.3% higher at 88.365 pence per euro today.
Traders are also preparing for more British economic data that, if better than forecast, may heighten expectations of a Bank of England interest rate rise.
The improvement in data and upbeat comments from Bank of England Governor Mark Carney has lifted expectations of an August rate hike to more than 70% from less than 50% two weeks ago.
