By 1430 GMT, sterling was up 0.4pc at $1.2712, bringing its gains in June to more than 3pc. After touching five-month lows, it returned to positive territory as the dollar index eased 0.15pc

Against the euro, the pound gained 0.24pc to 89.52 pence , recovering from a January low of 89.92. Sterling has now lost 4pc of its value against the euro since the start of April, although some of its losses during the past week came as a result of broad euro strength.

Investors are reluctant to take big positions in the pound amid the Conservative party leadership contest, which should end with a new prime minister in place by the end of July.

Boris Johnson, the frontrunner, has said Britain will leave the European Union on Oct. 31 deal or no deal. But he has also said there is only one chance in a million of leaving without an agreement in place.

"It is going to be a bumpy ride. GBP looks a bit more cheap. But the fact that it is cheap and unloved means there is a risk we see a slightly stronger GBP.

We could potentially see a stronger reaction if more market-friendly news are delivered," said Joseph Little, global chief strategist at HSBC Global Asset Management.

Sterling was unmoved by data showing showed the British economy grew 0.5pc in the first quarter, in line with expectations.

The pound is widely expected to remain under pressure until there is clarity around Brexit.

"As long as a no-deal Brexit remains a possibility, that should keep the pound below the psychological 1.30 mark against the US dollar," said Han Tan, market analyst at FXTM.

"Even though the UK leadership transition is set to be completed within the next month, sterling is expected to remain exposed to political risks leading up to the Oct. 31 Brexit deadline, as the UK continues to pursue its exit from the European Union."