The pound's strength - as high as $1.2787, up 0.4 percent on the day, before settling at $1.2750 - was largely down to dollar weakness, with a recovery in global risk sentiment since Friday knocking demand for the US currency .

Against a broadly stronger euro the pound shed 0.4 percent to 89.91 pence.

Traders expect the next two weeks to be highly volatile for sterling. A vote on May's Brexit deal - which she has said lawmakers must back if Britain is to avoid a disorderly Brexit in March - will be held on Jan. 15 following the parliamentary debate, the BBC reported.

Mixed signs on the momentum in Britain's economy continue to be overshadowed by investors' angst about the sort of Brexit Britain is headed for.

While a majority of British lawmakers want to avoid a disorderly crash out of the bloc, a majority are also opposed to May's deal. The prime minister postponed an earlier planned vote because she faced losing heavily.

"Multiple possible Brexit outcomes have come to light during the recent UK parliament recess. We still expect the vote to go ahead but the date of Brexit itself to be delayed," said Neil Jones, head of hedge fund FX sales at Mizuho.

"Heightened uncertainty will keep the pound on a general downtrend," he added.