A broad dollar rebound this month -- it has gained against all its major rivals -- has also undercut the appeal of the pound before a Bank of England policy meeting next week where policymakers are expected to leave interest rates unchanged.

Sterling - stuck around $1.29 - has struggled this week as lawmakers returned from an Easter recess with little sign of progress in Prime Minister Theresa May's efforts to convince lawmakers to back her Brexit deal.

Britain's departure date from the European Union has been pushed back until as late as the end of October. The protracted divorce is hurting the British economy and poor productivity is hindering growth, Goldman Sachs said.

Sterling edged 0.3 percent higher to $1.2932, its weakest since mid-February. Against the euro, the pound traded flat at 86.3 pence. On a weekly basis, it is set to decline 0.6 percent, its biggest drop in four weeks.

The dollar, which rose towards a two-year high on an index of major currencies, also weighed on the pound. So did the prospect of a fresh push for Scottish independence.

"Renewed debate about the choice of currency for an independent Scotland will rekindle uncertainty. Sterling risks $1.2800 in the current strong dollar environment," said Chris Turner, head of foreign exchange strategy at ING.

Differences over Brexit have strained relations with the British government, and Scotland will start preparing for an independence referendum before May 2021, First Minister Nicola Sturgeon said on Wednesday.

Scots rejected independence in a 2014 referendum and support since then has stuck at around 45 percent, opinion polls say.