The pound climbed to its highest level since mid-December 2016 on Thursday (26 January 2017) before retreating below $1.26, failing to build on official figures which showed Britain's economy expanded more than expected in the last three months of last year.
Sterling hit the second six-week high in as many days, as it reached of $1.2672 against the dollar, the highest level since 12 December, before the GDP data was released only to then relinquished some of those gains.
By early afternoon, the pound was 0.53% lower against the dollar, exchanging hands at $1.2563 and was largely flat against the euro, fetching €1.1741.
"The pound would do very well to get back to $1.40 again," said Fawad Razaqzada, analyst at Forex.com.
"The full impact of Brexit will not be felt for months, or even years, but the uncertainty will most likely prevent sterling from appreciating significantly in the interim. So get used to seeing see more chop and churn in GBP for the foreseeable future."
Data released by the Office for National Statistics showed Britain's GDP grew by 0.6% on a quarterly basis in the three months to the end of December, slightly ahead of the 0.5% that analysts expected. The rate of growth was unchanged from the previous two quarters. The figure was also marginally higher than the 0.6% advance recorded in the previous three months, and meant the UK economy grew by 2% as a whole in 2016, slowing slightly from 2.2% in 2015 and from 3.1% in 2014.
However, despite the better-than-expected figures, analysts warned 2017 will be a more testing year for the UK economy as consumer spending will be squeezed by rising inflation.
"Despite this, we should expect the underlying resilience of the UK economy and healthy global growth to support economic activity in the year ahead," said Andrew Sentance, senior economic adviser at PwC. "That should enable GDP to grow by close to 1.5% in 2017 even though Brexit uncertainties will have a dampening effect."
Elsewhere, the dollar continued the pattern that has seen it fluctuate over the course of the week. The greenback, which had declined against most of the G10 currencies on Wednesday (25 January 2016), was on the front foot again, rising 0.95% and 0.60% against the yen and the euro respectively, to trade at ¥114.36 and 0.9355 euro cents.
Flat against the Swiss franc, the dollar gained against its Australian and Canadian counterparts, gaining 0.46% against the former and 0.44% against the latter to trade at AUD $1.3266 and CAD$1.3128 respectively.