The European Union is due to publish guidelines this week, following on from a speech on Friday in which British Prime Minister Theresa May urged the bloc to be flexible in negotiating their future relationship.

Her comments disappointed markets, which wanted greater signs that Britain will clinch a transition deal at a summit next month.

"Brexit-related uncertainty is overshadowing the pound," said Manuel Oliveri, an FX Strategist at Credit Agricole in London.

The Bank of England has signalled that it could soon start raising interest rates because of relatively strong economic performance - to which a survey covering Britain's dominant services sector will give more clues - and inflationary pressures.

Analysts say Brexit risk remains the dominant factor for the currency. That drove it to its weakest level against the euro since November on Friday.

The pound traded flat at $1.3806 against the dollar, and down 0.1 percent versus the euro at 89.320 pence per euro .

"Euro sterling pushed up to its highest levels this year last week, edging above 0.8930 with the next resistance at the 0.9020 area," said Michael Hewson, chief analyst at CMC Markets.

Against the dollar, the pound has fallen in recent weeks and remains far below its post-Brexit vote high of $1.4346 hit in January.

Still, investors added to their net long positions on the pound last week, data shows, signalling that traders are still betting it will rise.