LONDON: The British pound fell on Friday, reversing some of its recent gains, as EU chief negotiator Michel Barnier warned that there were just hours left to reach a Brexit trade deal with London.

Market confidence has risen sharply this week that the two sides will clinch a deal, which would ensure that the goods trade which makes up half of annual EU-UK trade would remain free of tariffs and quotas beyond Dec. 31.

The pound hit 2-1/2 yeah highs above $1.36 on Thursday, but Friday's trading session served as a reminder that a deal is far from guaranteed.

Barnier told the European parliament that the path to an agreement was "very narrow".

"The pound corrected from its 2-year highs in early trading today but remains at levels that clearly signal a lingering optimism on a deal and GBP downside risk remains asymmetrically higher in case of no-deal," ING analysts said, noting that Sunday now seemed like the new deadline for an agreement.

"We remain of the view that a deal will eventually be agreed on, although it is quite a close call considering the short time left for negotiations," they added.

The pound weakened to as low as $1.3512, before settling at $1.3542, down 0.3pc on the day.

Against the euro, sterling was down slightly at 90.54 pence .

British Prime Minister Boris Johnson told European Commission President Ursula von der Leyen in a call on Thursday that it now looked very likely that an agreement would not be reached unless the EU position changed substantially.

Von der Leyen said progress had been made but bridging the divide on some areas, especially fisheries, would be "very challenging".