Sterling briefly rose to a one-week high on Friday after European Union negotiator Michel Barnier said the EU was open to discussing other "backstops" on the Brexit issue, though a dollar rally on the back of strong US jobs data checked gains.
The EU has made a so-called "backstop" proposal to guarantee an open UK-EU land border in Ireland a condition for any divorce deal before Britain leaves the bloc on March 29, 2019. Both sides are under increasing pressure to overcome the outstanding issues.
In testimony to British lawmakers dated Sept. 3, Barnier said a backstop on Ireland was crucial but added that the EU remained open to finding other solutions
"We are open to discussing other backstops, so we can discuss this text, we can make changes to it," he said.
"We are ready to simplify these checks," he added.
The British currency jumped as much 0.7 percent against the dollar to $1.3011 and by a similar margin against the euro at 89.31 pence before trimming gains.
US job growth accelerated in August and wages notched their biggest annual increase in more than nine years, sending the dollar to a two-week high against a basket of its rivals and cutting into sterling's gains.
By late afternoon, sterling trimmed gains to be up 0.3 percent on the day and was poised for a third consecutive week of gains.
Barnier's comments come after a senior EU lawmaker told Reuters earlier this week that the European Union could offer new guarantees to Britain to win London's support for a solution aimed at avoiding an Irish border after Brexit.
"Barnier sounds a little bit more conciliatory, and this could mean perhaps a little bit more progress has been made on the Irish border question, which remains a huge hurdle," said Rabobank senior currency strategist Jane Foley.
The British currency has had a volatile week as headlines on the progress of Brexit negotiations forced traders to switch positions rapidly in a currency market that is broadly short on the pound based on positioning data.
A Reuters poll showed that sterling could rise as much as six percent in a year, but a no-deal Brexit could see it falling as much as eight percent from current levels.