LONDON Sterling gained broadly against major currencies on Monday, after Scotland's First Minister Nicola Sturgeon demanded a fresh Scottish independence referendum but said it should take place at the earliest in late 2018.
The pound was up 0.6 percent on the day, having fallen below $1.22 immediately after Sturgeon said she would seek authority from the UK government -- which is preparing to trigger formal talks on Britain's exit from the European Union -- to hold a new vote.
But the currency quickly reversed course after Sturgeon said the vote should happen between autumn 2018 and spring 2019.
Sterling last traded at $1.2226, nearly 15 ticks above levels seen when Sturgeon started speaking. It rose by the same percentage on the day to 87.21 pence per euro, its highest level in eight weeks.
"I think (with markets) having built up some concern that it (the Scottish vote) could be as close as next autumn, sterling just bounced back on relief that no date was mentioned," said Rabobank currency strategist Jane Foley.
A number of strategists cast the moves in sterling over the past few days as largely profit-taking by investors who have made it the worst performing major currency against the dollar this year.
CFTC data on Friday showed speculators raised their net short bets on the pound versus the dollar for the fifth straight week, to their highest level since November.
Foley said the overall outlook for the pound -- down nearly 5 cents against the dollar since early February -- was still bearish.
"I definitely see sterling as vulnerable after Article 50 is triggered because there is a significant risk that when the negotiations start with the EU, the EU could certainly play quite a difficult hand for the UK to respond to."
Lawmakers were set to thrash out the final wording of a bill giving British Prime Minister Theresa May the power to trigger Article 50 and launch a two-year process of Brexit negotiations with the EU.
In a debate on Monday, the government will call on parliamentarians to throw out changes to the bill made by the upper house, which said May must guarantee the rights of EU nationals living in Britain and give lawmakers more powers to reject the final terms she reaches with the EU.
It must ward off a potential rebellion in the lower house, where May only has a slim majority, from a handful of pro-EU Conservatives who say parliament should be able to prevent the government walking away from talks without a deal.
"The actual triggering (of Article 50) is really in the price today," said ING currency strategist Viraj Patel.
"Anything that delays this process, anything that pushes you away from getting closer to the end Brexit deal is sterling negative."
(Editing by Catherine Evans)