Developments in Brexit negotiations viewed as broadly positive for Britain, and growing expectations that the Bank of England could soon raise interest rates have helped the pound rally this year to its highest since the June 2016 vote to leave the European Union.

"The pound looks on course to post another decent month and a decent quarter," said Michael Hewson, chief analyst at CMC Markets.

Sterling is up 4 percent versus the dollar this quarter, its best performance since mid-2015. Against the euro it has risen 1.4 percent since January, heading for the best quarter since 2016.

On Thursday, end-of-quarter flows by investors overshadowed data showing a narrower UK current account gap and an upgrade in fourth-quarter business investment.

Dollar strength and the sense among investors that the British currency may have got ahead of itself have undermined the pound rally this week, and traders say better news is needed next quarter to justify another leg higher.

The pound lost 0.2 percent versus the dollar to $1.4050 , bringing week-to-date losses to 0.6 percent.

"The data today showed investment picking up quite a lot in the fourth quarter which makes a more constructive case for the BoE's hawkish tilt, but these kind of figures have to be sustained," said Valentin Marinov, head of G10 FX strategy at Credit Agricole.

"On the whole, Brexit concerns have taken something of a backseat since last week and I think markets are focused on data."

Data on Thursday upgraded Britain's fourth-quarter business investment to 0.3 percent from flat earlier. Fourth-quarter GDP was left unrevised at 0.4 percent while the current account deficit was revised down sharply.

Marinov said he had a broadly positive outlook for the pound next quarter, particularly against safe-haven currencies like the yen and Swiss franc. But he did not see it rising above $1.41 against the dollar.

Versus the euro, the pound fell 0.2 percent on Thursday to 87.64 pence per euro.