Sterling's rally lost some of its momentum on Tuesday after Prime Minister Theresa May offered lawmakers the chance to vote on delaying Brexit, a move investors said would fuel uncertainty in the weeks before Britain is scheduled to exit the EU.
May has opened up the possibility of taking a no-deal Brexit — the worst case scenario for sterling — off the table and that has sent the pound surging in recent sessions. It hit a 21-month high against the euro before May spoke and surged to four-month peaks versus the dollar.
Speaking to parliament, May said lawmakers could vote on March 14 on a motion requesting a "short, limited extension" Brexit delay if they rejected her Brexit deal on March 12.
"The bit about the "short delay" is what is weighing on markets but then some of it is also profit-taking after the rally we have seen in the pound since the last few days," said a trader at a European bank in London.
Sterling had soared past $1.32 earlier on Tuesday, hitting its highest level since October following media reports that May would rule out a no-deal Brexit.