But Brexit concerns still weighed on the British currency, and together with a broader market environment of risk-off sentiment, put it firmly on track for its fifth consecutive month of losses.

In late London trading, sterling fell a third of a percent to $1.2966, stepping further away from Thursday's high of $1.3043, the highest since Aug. 3.

"Markets are getting a bit more optimistic about a breakthrough in Brexit negotiations though price action is far more cautious," said Marc Ostwald, global strategist at ADM Investor Services in London.

Brexit minister Dominic Raab said he was "stubbornly optimistic" that Britain would reach a deal with the European Union on the terms of its departure from the bloc in time for an October meeting of EU leaders.

After talks with the EU's chief Brexit negotiator Michel Barnier, Raab said he was "as confident as before, if not more" that there will be a deal with the EU on Brexit.

Foreigners' net holdings of British government debt fell by a record amount last month, a move partly driven by a large volume of maturing bonds but one that also revived concerns about the effect of Brexit on investor demand.

Against the euro, the British currency slipped to 89.71 pence, well below the 2018 high of 86.2 pence hit in April.

Investors were wary of buying the currency aggressively as underlying economic weakness remained.

Britain has one of the highest current account deficits as a percentage of GDP in the developed world, and data this week showed companies growing more worried about a no-deal Brexit .

Markets will also be closely watching Bank of England Governor Mark Carney's comments about the central bank's decision to raise interest rates in August next week.