The pound extended gains following a report that key ministers will back UK Prime Minister Theresa May’s draft Brexit agreement after months of negotiations.
Sterling was at 1.299 to the dollar at 12 noon UAE time. Mrs May will later on Wednesday try to convince senior ministers on Wednesday to accept a draft European Union divorce deal that opponents said would imperil her own government and threaten the unity of the United Kingdom.
As the EU braces for the biggest split in its history, the weakest British leader in a generation now has to try to get the deal approved by parliament before exiting the bloc on March 29, 2019. Brexiteers in Mrs May's party accused her of surrendering to the EU and said they would vote the deal down while the Northern Irish party which props up her minority government questioned whether she would be able to get parliamentary approval.
The British cabinet will meet at 14.00 GMT.
"From what we have seen and heard we do not believe this deal is the best deal," said Jeffrey Donaldson, a policymaker in the Northern Irish Democratic Unionist Party (DUP), which props up Mrs May's government.
"This deal has the potential to lead to the break-up of the United Kingdom and that is not something we can support," said Mr Donaldson, who added that he was not afraid of another election.
The draft deal pushes the United Kingdom towards the Brexit finale although the ultimate outcome is uncertain: scenarios range from a calm divorce to upheaval that would scuttle the economy and sink Mrs May's premiership or even lead to another referendum.
Mrs May, an initial opponent of Brexit who won the top job in the turmoil following the referendum vote, staked her future on a deal which she hopes will solve the Brexit riddle: how to leave the EU while preserving the closest possible ties.
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But far from garnering broad support, her plans so far have upset Brexiteers, pro-Europeans, Scottish nationalists, Northern Ireland's DUP and some of her own ministers.
Brexit will pitch the world's fifth-largest economy into the unknown and many fear it will serve to divide the West as it grapples with both the unconventional US presidency of Donald Trump and growing assertiveness from Russia and China.
For the EU, already reeling from successive crises over debt and refugees, the loss of Britain is the biggest blow yet to 60 years of efforts to forge European unity in the wake of two world wars.
Sterling, which has seesawed since reaching $1.50 just before Britain's 2016 referendum that saw a 52 to 48 per cent margin for leaving the EU, surged on news of a deal but then erased some gains as opponents lined up to criticise Mrs May.
Supporters of Brexit say that while the divorce might bring some short-term instability, in the longer term it will allow the United Kingdom to thrive and also enable deeper EU