The euro and sterling rose against the dollar on Monday after the European Union's top negotiator said an agreement for Britain to leave the economic bloc might be reached in the coming weeks.
The pound in particular had been under pressure in recent weeks on anxiety that Britain would exit from the EU without any formal trading arrangement.
"Sterling bears have been caught off side. The euro is also getting a bump as people are jumping on a 'risk-on' sentiment," said Dean Popplewell, vice president of market analysis at OANDA, in Toronto. EU chief negotiator Michel Barnier told a forum in Slovenia a Brexit deal was "realistic in six to eight weeks."
The sterling was up as much as 1 percent versus the dollar. It was last up 0.8 percent at $1.3027, Reuters data showed. The euro rose nearly 0.4 percent at $1.1592, but was down 0.5 percent at 89 pence.
Positive view on Brexit reduced safe-haven holdings of the dollar whose decline was limited by an upbeat U.S. jobs report released on Friday and lingering worries about emerging market currencies, analysts said.
An index that tracks the dollar against euro, sterling, yen and three other currencies was 0.3 percent lower at 95.059. Speculators' net long bets on the U.S. dollar fell to a five-week low, worth $20.60 billion in the week ended Sept. 4, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.
An index for emerging market currencies fell 0.4 percent to near one-week lows. The Indian rupee fell to a record low while the Hong Kong dollar hit the lower end of a trading band.
"We have had strong U.S. jobs data which has cemented market expectations of at least 2 more rate hikes this year and that doesn't bode well for emerging markets," said Piotr Matys, a markets strategist at Rabobank in London.
Meanwhile, the Swedish crown, which has been the worst performing currency among the majors, rose 0.2 percent versus the dollar after gains for the far right in Sunday's vote were smaller than some polls had predicted - even though the country faces weeks of uncertainty as it ties to form a government.