Sterling last traded at $1.3252, having slipped further from Wednesday's nine-month high of $1.3380, with its fall of 0.76 percent on Thursday. But it is up 1.8 percent so far this week, the biggest such gain since late January, supported by relief that Britain will avoid crashing out of the EU without a deal.
Against the euro, the pound retreated to 85.45 pence per euro from Wednesday's 22-month peak at 84.725. British lawmakers approved a motion setting out the option to ask the EU for a short delay if parliament can agree on a Brexit deal by March 20, or a longer delay if no deal can be agreed in time. The pound was mostly steady after the motion was passed late on Thursday.
"There has been a soft consensus in the market that the Brexit will be delayed. Things have been moving in line with that," said Kyosuke Suzuki, director of forex at Societe Generale. "But tail risk has not completely disappeared yet. The next week's EU summit will probably be the climax," he said, noting the fact that all 27 EU members must approve any extension.
Before UK Prime Minister Theresa May meets EU leaders on Wednesday and Thursday, a new vote on her twice-rejected deal is likely next week. Lawmakers must now decide whether to back a deal they feel does not offer a clean break from the EU, or reject it and accept that Brexit could be watered down or even thwarted by a long delay.
The yen bounced back from a one-week low of 111.83 per dollar touched on Thursday after Russia's TASS news agency reported North Korea's vice foreign minister said the country is considering suspending nuclear talks with the United States. The yen also had a mild boost as the BoJ kept monetary policy steady. Though it had been expected to stand pat, there are expectations that Governor Haruhiko Kuroda could make a stronger show of its readiness to ease policy further at his news conference at 0630 GMT.
"It would be wise for the BoJ to keep markets believing that way. There is no reason to crush such expectations. Kuroda could express his willingness to ease if needed," said Shinji Ishimaru, senior analyst at MUFG Bank. "But on the other hand, it is also true that the market's take is that there's little the BoJ can actually do to ease. So his comments may have limited power in boosting the dollar/yen."
The dollar was broadly weaker after US data on Thursday underscored growing pressure on the US economy and kept the dollar in check. The number of Americans filing applications for unemployment benefits increased more than expected last week while new home sales fell more than expected in January. The euro traded at $1.1320, up 0.15 percent.
The Australian dollar gained 0.3 percent to $0.7083. It was knocked off this week's high of $0.7098 on Thursday by reports that a possible summit meeting the United States and China to hammer out a trade deal will be delayed.