Sterling rose to a two-week high on Friday after weak US jobs data weighed on the dollar and bolstered the case for a Federal Reserve interest rate cut. The opposition Labour Party beat off the insurgent Brexit Party - which has sought to seize on anger with mainstream parties by pushing for a no-deal Brexit - in a by-election in eastern England whose results came in overnight, although analysts said that with the ruling Conservatives coming in third it would not improve sentiment towards the pound by much.
Helped mostly by an ailing dollar rather than because traders feel more confident that Britain can avoid a no-deal Brexit, the pound is on course for its first weekly gain in five.
Investors have shied away from making big bets on the pound in recent weeks as a leadership contest to take over from Theresa May as Conservative Party leader and prime minister heats up.
Boris Johnson, who campaigned to leave the European Union in the 2016 referendum, is favourite to win, worrying investors that he could set Britain on a course towards leaving the bloc without a deal.
That would send sterling hurtling lower, but this week the pound has managed to recover from five-month lows thanks to a dollar weakened by the prospect of Federal Reserve interest rate cuts.
Sterling went as high as $1.2757, its strongest since May 21, and was last up 0.4% at $1.2743. That left it up 0.8% this week after four consecutive weeks of losses.
Adam Cole, strategist at RBC Capital Markets, noted that the Labour party's win over the Brexit party in the Peterborough by-election was extremely narrow, "so we don't expect GBP to find much relief from the recent rise in political risk premia."
Others, however, said the results would support the pound as it raised expectations of another delay to Brexit. Britain is currently scheduled to leave the EU on October 31.
"Opposition Labour party narrowly beating the newly formed Brexit party was a surprise to the market I would suggest and reawakens the chances of a further A50 delay, which right now is a firm pound positive," said Neil Jones, head of hedge fund currency sales at Mizuho bank.
Against the euro the British currency has struggled, and failed to make much of a recovery this week.
It traded down 0.1% at 88.95 pence against a resurgent euro, leaving it on the brink of a six-month low. On Thursday, the euro had rallied after the European Central Bank sounded less dovish about monetary policy and the economic outlook than expected.