The pound gained ground against its major counterparts in the European session on Monday, as the U.K. government has decided to drop a plan to ditch the top rate of income tax following severe criticism and turmoil on financial markets.

The government, led by Liz Truss, announced that it would reverse plans to slash the top rate of income tax to 40 percent from 45 percent.

"The abolition of the 45pc rate had become a distraction from our mission to get Britain moving," PM wrote on Twitter.

The pound touched an all-time low of $1.03 last week and U.K. gilts were sold off following the mini-budget statement.

The decision to change the tax cuts has triggered a modest recovery in the pound today morning.

The pound approached 1.1282 against the greenback and 0.8703 against the euro, its highest levels in nearly 2 weeks. The pound is likely to locate resistance around 1.27 against the greenback and 0.85 against the euro.

The pound appreciated to near 2-week highs of 1.1110 against the franc and 163.30 against the yen, off its prior lows of 1.0931 and 160.57, respectively. The pound may face resistance around 1.21 against the franc and 165.00 against the yen.

Looking ahead, the U.S. construction spending for August and ISM manufacturing for September will be released at 10:00 am ET.

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