Sterling slipped from a six-week high against a strengthening dollar on Thursday as investors booked profits after a rally that saw the pound climb almost 5 percent in just 10 days.
The pound opened the day on a strong note against the dollar, nearing $1.27 and bolstered by data showing Britain's economy maintained its momentum in the final three months of 2016 - again defying expectations that June's vote for Brexit would rapidly take a toll on growth.
But it quickly gave up those gains as the dollar rallied across the board after reaching a seven-week low and, having touched a high of $1.2674, sterling was trading over a cent lower than that by 1620 GMT at $1.2571.
That still left sterling on track for its best fortnightly performance against the dollar in 10 months.
"We're seeing a dollar reversal across the board and cable (sterling/dollar) is just getting caught up in that - it's fair to say the newsflow is still very positive for sterling," said RBC Capital Markets currency strategist Adam Cole.
Brexit minister David Davis on Thursday began the process of passing a law enabling the government to trigger Britain's exit from the EU. He published legislation and introduced it to parliament - the first stages in the normal lawmaking process which will see both chambers of parliament scrutinise the bill.
"Though there is clearly going to be several weeks of debate now in both houses, I don't think that's going to have that much effect on sterling because we know the bottom line is that neither house is going to block the legislation," said Cole.
"So I think politics goes quite quiet now (for sterling) until we get to the point when Article 50 is triggered," he added, referring to Article 50 of the Lisbon Treaty, which will formally start Brexit talks.
The focus for currency traders since Britain voted to leave the EU has been how that departure plays out - whether it will be a "hard" exit, in which Britain leaves the European single market, or a "softer" one being the key question.
With more clarity on the government's position - after Prime Minister Theresa May said last week Britain would indeed be departing the single market and the Supreme Court ruling this week that parliament must approve the triggering of Article 50 - it now appears that investors are turning to fundamentals.
Investors are looking ahead to the first Bank of England "Super Thursday" of the year next week, when the BoE will present its quarterly inflation report along with its decision on monetary policy.
Inflation has accelerated as sterling has shed 12 percent since the Brexit vote on a trade-weighted basis. This has led to market talk that the BoE will take a more hawkish tilt and even signal that it is moving closer to raising rates from their current record low of 0.25 percent.
But a Reuters poll on Monday found most economists expect the BoE to leave its rates and other stimulus measures unchanged at least until 2019, even though it is likely to raise its 2017 growth forecast again next week.
Traders will also be watching a meeting between US President Donald Trump and Theresa May in Washington on Friday, with trade expected to dominate discussions.
"Sterling will focus on news headlines around PM May's US visit which, at face value at least, should be positive for the currency," said Commonwealth Bank currency strategist Adam Myers.
Against the euro, the pound rose 0.3 percent on the day to 84.83 pence, close to a three-week high of 84.71 pence touched earlier.
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