Sterling rebounded today as investors who had sold the currency for safe havens after the US assassinated an Iranian general returned to the pound.
Analysts said an upward revision to a business survey probably helped the pound, while the focus for investors now shifts to a parliamentary debate on Brexit legislation tomorrow.
The Purchasing Managers Index survey for Britain's services for December came in with a final reading of 50, better than the 49.1 reading forecast by economists polled by Reuters.
Optimism among companies has improved markedly since the election, although the economy continues to stagnate, the PMI survey showed.
Investors have remained cautious about the pound since Prime Minister Boris Johnson's Conservatives won the December 12 general election.
They worry about more political uncertainty as Britain prepares to leave the European Union and the two sides begin negotiations over their future trading relationship.
The UK parliament returns tomorrow and will debate the Brexit bill, which includes a clause ruling out any extension of the transition period for trade talks beyond December 2020.
The pound rose 0.7% to as high as $1.3163 today but remains below last week's $1.32.
Sterling fell on Friday after the US assassinated the Iranian general Qassem Soleimani, panicking investors and boosting demand for safe-haven currencies, including the dollar.
The pound was also higher against the euro today, rising 0.4% to 85.065 pence.
The British currency still remains some way off its more than three-year high of 82.78 pence per euro reached last month.