LONDON: Sterling rose against a weaker dollar on Friday, briefly testing the key $.130 level, and was set for a weekly gain as markets turned more optimistic about Brexit negotiations ahead of a key European Union leaders summit next week.

The pound has been volatile this week on contradictory headlines about how much progress has been made in Brexit negotiations. Both sides have said it is still possible that a deal will be reached before the UK's status-quo transition period ends on Dec. 31.

But the EU's chief negotiator wants more concessions from Britain before entering the last phase of intense negotiations, an EU diplomat said. "The last two weeks have seen some brutal whipsawed price action in sterling," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets,

"There is going to be that ongoing susceptibility to Brexit headlines but the mood music still seems to be reasonably positive," he said. At 1501 GMT, the pound was at $1.2998, up 0.5% on the day against a weaker dollar.

It was set for a second consecutive week of gains, up 0.4% on a weekly basis. Versus the euro, it was little changed at 0.9088, in a move which analysts said was driven by dollar weakness and euro-dollar strength. The greenback was heading for a second week of losses as investors increased bets that Joe Biden would win the US presidential election on Nov. 3 and offer fiscal stimulus afterwards.

Cable briefly tested the key $1.30 level, rising to $1.3002 at 1457 GMT, but, as on Tuesday when it touched $1.3007, its gains were limited by investor caution over Brexit and the risk of negative rates. "There's obviously a reluctance of investors to push beyond $1.30 because there's so much fog," said Kenneth Broux, FX strategist at Societe Generale.