Sterling rose on Tuesday following better-than-expected jobs data and after British Prime Minister Boris Johnson cleared the first hurdle for legislation that would breach the Brexit treaty, although analysts said the bounce was likely temporary.
The pound, which has fallen sharply in recent weeks as investors fretted that Johnson's plan sharply increased the risk of a no-deal Brexit, was 0.4% higher at $1.2891, moving away from two-week lows.
Johnson won the so-called second reading parliamentary vote but faces a growing rebellion from his own party as the bill moves through parliament.
Against the euro, sterling gained, with the single currency down 0.1%, at 92.20 pence per euro.
Despite the rise, analysts warned the pound would continue to face downward pressure.
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"There appears to be no easy quick way out to resolve the latest gridlock in UK-EU trade negotiations," said a note from MUFG.
"A deal is only probable very late in the day now and hence any short-term pound bounce will not last with potential big declines still to come."
Sterling was also buoyed by slightly better-than-expected UK employment data.
While Britain's unemployment rate rose to 4.1% in the three months to July, from 3.9%, the number of people in employment fell by a much smaller-than-expected 12,000.
Job vacancies rose to 434,000 between June and August, about 30% higher than in the April-to-June period but almost half pre-pandemic levels.
Reuters