Sterling hit a six-week high against the dollar and one-month peak versus the euro on Friday but later reversed gains as the US currency rose sharply in afternoon trade.
Sterling has been riding high this week after the Bank of England signalled that it was in no hurry to cut interest rates again after lowering the cost of borrowing for the first time in two years last week.
Investors will look to a raft of UK economic data next week including retail sales, consumer prices and unemployment to cement this view.
But the pound erased gains versus the dollar in afternoon trade after widely-watched US trade data was not as bad as some in the market were expecting.
"Trade figures were a little bit weaker than expected but weren't the shocker some were expecting. People were short dollars going into the number and now they are covering positions," said Kamal Sharma, currency strategist at Bank of America.
By 1330 GMT, the pound was trading at $1.8105, down slightly on the day after hitting a six-week high of $1.8177 earlier.
The US trade deficit widened to $58.82 billion in June compared with a forecast of $57.3 billion and $55.35 billion in May but there had been market rumours of a figure above $60 billion.
Sterling held onto gains versus the euro, rising almost half a percent on the day to 68.49 pence - its highest level since July 14 - after breaking through technical resistance at 68.75 pence.
"The market was fairly short on sterling going into this week but the inflation report on Wednesday undermined the rationale for those positions," said Ian Gunner, head of foreign exchange research at Mellon Bank.
The Bank of England said in its quarterly inflation report on Wednesday that the economic growth outlook in Britain had weakened slightly in the near term but inflation was seen moving above its two percent target.
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