Sterling fell on Friday after the U.S. dollar rallied and investors began to doubt recent optimism about an imminent Brexit deal.
The pound has traded as high as $1.3176 this week, a three-week high, after Britain appeared to be edging towards clinching an exit deal with the European Union.
But work remains to be done before an agreement is reached, with both sides struggling to decide on a mechanism for avoiding a hard border separating Northern Ireland and Ireland.
The Northern Irish party which props up Prime Minister Theresa May’s government said on Friday that her negotiations had raised alarm bells and that it would not support a Brexit deal that divided the United Kingdom.
Sterling dropped as much as half a percent to as low as $1.2986, back to levels it stood at on Monday, with much of the fall coming after investors flooded into dollars.
That move followed the U.S. Federal Reserve reiterating that it would stick to interest rate tightening in the face of a strengthening labour market.
Third-quarter GDP numbers showed a 0.6 percent rise from the previous three months, in line with a Reuters poll of analysts, figures from Britain’s Office for National Statistics (ONS) showed.
The pound also traded lower versus the euro, by 0.2 percent to 87.19 pence per euro.