Sterling was on course for one of its best weekly performances in 2018 on Friday, aided by optimism for a Brexit deal and after the Bank of England signalled more interest rate hikes could be on the way if Britain's exit from the European Union is smooth.
The pound enjoyed its best day of the year against the dollar on Thursday as a market betting heavily against the currency rushed to price in the possibility that a Brexit deal would be clinched.
An agreement with Brussels on the terms of divorce would remove a major uncertainty overshadowing the economy and the BoE as it tries to curb inflation.
While it failed to make much headway above $1.30 on Friday, after the better-than-expected United States labour market data supported the dollar, sterling at 1425 GMT remained more than 1.3 per cent higher against the buck this week.
"Once the MPC (Monetary Policy Committee) gets the Brexit 'green light', we expect two hikes in 2019, in May and November – sooner, and by more, than markets expect."
Money markets are not fully pricing in a full 25 basis point rate hike from current levels of 0.75 per cent at any point in 2019, underscoring investor concerns about whether Britain can avoid a disruptive Brexit.
The pound traded at $1.3003 in late European trade on Friday after earlier hitting $1.3042, its highest since Oct. 23.
It slipped 0.2 per cent against the euro to 87.895 pence but remained near two-week highs following Thursday's huge jump.
David Madden, an analyst at CMC Markets, said that if the pound held above $1.30 "it could pave the way for $1.3250 to be tested", but if sterling weakens again the currency may fall towards $1.2661.
The British government and EU officials have this week played down hopes for an imminent Brexit deal, emphasising that while an agreement is close the two sides still have work to do.
Any agreement with Brussels would then need to win approval from British parliamentarians before Britain's scheduled departure date of March 29, a far from easy process given factions with Prime Minister Theresa May's Conservative party oppose her proposals for a Brexit agreement.
(With inputs from agencies.)