The pound was broadly steady against both the dollar and the euro on Friday after EU Council President Donald Tusk outlined his proposed negotiating guidelines for Brexit, two days after Prime Minister Theresa May formally triggered Article 50.
Speaking in Malta, Mr Tusk made clear that Britain must start to deal with its divorce from Europe before talks on future trade terms could commence.
In a nine-page document he said that there must be "sufficient progress" on withdrawal talks, before negotiations on future relations could begin.
But currency markets seemed unperturbed.
The pound was trading little changed at around $1.244 against the dollar and slipped only marginally against the euro to €1.165 after the response was presented.
On Tuesday, sterling hit a seven-week high against the dollar, but that move was large attributed to investors selling the US currency on doubts around Donald Trump’s promised tax and regulatory reform.
In the longer run, a many economists and investors still think that a sustained sterling recovery is not on the horizon and more volatility is in store.
David Meier, an economist at Swiss bank Julius Baer, said on Friday that he thinks that “economic uncertainty will curb foreign direct investments going forward” and that this is his main argument for having a pessimistic, or bearish, forecast for the currency.
Last week strategists at Deutsche Bank published an update to their forecast, predicting the currency could still fall at low as $1.06 before recovering.
Some, however, are more optimistic. Strategists at Morgan Stanley said that they are positioning in favour of the pound against the dollar on account of UK data proving robust and a recent survey from the Bank of England pointing to stronger investment intentions.
They add that Scottish parliament backing another independence referendum might also "add pressure to the government to come to a more moderate Brexit arrangement".
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