The pound slipped on Monday as traders awaited a statement from Prime Minister Theresa May in parliament on her plans to break a deadlock over Brexit.
The British currency had steadied above $1.28 levels since last week as markets had built up expectations that Britain would not leave the European Union without a deal.
But with around two months to go until Britain is due to leave on March 29, investors advised caution around current levels as there was no sign on how it will leave the world's biggest trading bloc, with the pound trading roughly midway of a two-year trading range.
"Investors have priced out the most negative of scenarios which is a no-deal Brexit but markets need to see more concrete gains before pushing the pound higher from current levels," said Ricardo Evangelista, a senior analyst at ActivTrades Plc in London.
Sterling edged a quarter of a percent lower at $1.2836. Against the euro, it was down 0.4 percent to 88.57 pence.
May will make a statement in parliament at about 1530 GMT and put forward a motion in parliament on her proposed next steps on Brexit, though some lawmakers are planning to wrest control of Britain's exit from the government.
Last week, May's deal suffered a heavy defeat in parliament but she won a subsequent vote of confidence.
In a sign of how bullish market participants have become on the prospects of Britain avoiding a no-deal Brexit, one month implied volatility on the pound or expected price swings have fallen to a one-month low below 11 vol.
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