Sterling bobbed around the $1.30 mark on Friday but was set to snap a three-week losing streak as investors waited to see if last-minute talks between the United Kingdom and the European Union can yield tweaks to the Brexit withdrawal agreement.
The pound is headed for a 1.2 percent rise for the week, breaking three consecutive weeks of losses. On a weekly basis, it was also the best performing currency among its major rivals. It was broadly flat at $1.3032 by 1520 GMT on Friday after jumping up and down on mixed messages about progress in UK-EU talks.
Against the euro, sterling was also unchanged at 86.97 pence per euro. "Without a breakthrough in Brexit talks it will be difficult for sterling to go through these levels," said MUFG currency analyst Lee Hardman, referring to the $1.30 and 87 pence per euro levels around which the pound has jumped back and forth in recent sessions.
The European Union's Brexit negotiator, Michel Barnier, said on Friday he could not rule out the possibility that Britain's EU withdrawal would be pushed back. Britain is due to leave the EU on March 29, but Prime Minister Theresa May is seeking further concessions on her Brexit deal in hope of winning the support of lawmakers before putting it to another vote in parliament.
If she fails, May will have to decide whether to delay Brexit or endanger the world's fifth largest economy by leaving without a deal. May has promised to give parliament a chance to decide what to do about Brexit on Feb. 27 unless she can bring back a deal. Optimism about some sort of an imminent breakthrough is reflected in the currency derivatives markets with one-month pound risk reversals, a gauge of calls to puts on the pound, rising to one-month highs.
However, some analysts say the upside is limited for the pound in the short term as a deeply divided parliament might present significant hurdles for any concessions that May can wrangle out of the European Union. "The EU might make some concessions if it would help May to pass the bill through parliament, but unless May tells them what will pass, there's no reason for them to budge," said Marshall Gittler, chief strategist at ACLS Global.
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