Sterling traded flat on Thursday after Prime Minister Theresa May failed to secure a blueprint for Britain's future ties with the European Union at a meeting with the head of the bloc's executive.
May will return to Brussels on Saturday to try and agree an outline for Britain's withdrawal from the EU. All EU leaders are due to meet on Sunday to approve the deal.
Just over four months before Britain's departure from the EU, Brexit negotiations and political uncertainty in Britain remain the key drivers for the pound, and many analysts are cautious about its prospects.
"With the UK and EU rushing to dot i's and cross t's on a Brexit deal, there's some support for sterling at the moment and some upward pressure on the front end of the rates market," said Societe Generale strategist Kit Juckes.
"Though it won't take long before we refocus on the challenge facing the Prime Minister in getting House of Commons support for her Brexit deal," he added.
The pound was up 0.1% to $1.2784 at 0900 GMT but down 0.1% against the euro to 89.19 pence
Growing opposition to May's draft arrangement has hit sterling hard in recent weeks, pulling it down nearly 3% from a Nov. 7 high of $1.3176.
Raising the stakes, EU diplomats said they had been told that German Chancellor Angela Merkel was not willing to come on Sunday for any more talks, meaning a text must be ready beforehand.
Outstanding issues include a Spanish threat to block the so-called political declaration over Gibraltar and problems from other states on fishing rights and future trade ties. (Reuters)