The pound plunged on Friday and reversed earlier gains after Irish foreign minister Simon Coveney said that a Brexit deal was not imminent.
Asked on BBC radio about reports of significant progress in Brexit negotiations, Coveney said that “everyone needs a dose of reality”.
“We need to be honest with people and say that we’re not close to that deal right now,” he said.
The pound fell by 0.18% against the dollar (GBPUSD=X) to just over $1.25 on Friday.
The pound also fell by 0.10% against the euro (GBPEUR=X) to €1.13.
Though Coveney acknowledged that the “mood music” had improved between the two sides, he said there was still a “wide gap” between what the UK was proposing and what the EU could support.
“But there is an intent I think by all sides to try and find a landing zone that everybody can live with here,” he said.
“We all want a deal, we all know that a no-deal will be a lose, lose, lose for everybody, but particularly for Ireland and Britain.”
“The pound has come sharply off overnight highs, allowing the FTSE to rebound again, after the Irish foreign minister dashed hopes a Brexit deal was imminent,” said Fawad Razaqzada, a market Analyst at Forex.com, in a note.
Earlier, the pound had hit a two-month high against the dollar, after European Commission president Jean-Claude Juncker said a Brexit deal was still possible.
Sterling has fallen in recent months as fears have grown of a damaging no-deal Brexit, but has rallied in recent weeks as the prospect of a no-deal Brexit has receded, mostly as a result of the rebellion in parliament.