LONDON (Reuters) - Sterling ticked higher against the dollar and euro on Monday after Scotland's First Minister Nicola Sturgeon demanded a fresh Scottish independence referendum but said it should take place at earliest in late 2018.
The pound initially fell below $1.22 as Sturgeon said she would seek authority from the UK government - which is readying to trigger Article 50, Britain's formal notification of exit from the EU - to hold a new vote.
But it quickly turned to bounce higher after she laid out a possible window of timing for the vote - saying it should happen between the autumn of 2018 and the spring of 2019.
The British currency was last up 0.4 percent at $1.2218, around 10 ticks above levels seen when Sturgeon started speaking. It also rose half a percent on the day to 87.28 pence per euro.
"I think (with markets) having built up some concern that it (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 players cast the moves in the sterling over the past few days as largely profit-taking by some of the investors who have made it the worst performing major currency against the dollar this year.
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."
Fears of a wider break up of the United Kingdom as it divorces the EU have pressured sterling in recent weeks, with a nationalist surge in Northern Ireland also stoking fears among investors.
The pro-British Democratic Unionist Party narrowly remained the largest party in Northern Ireland after the closest-ever election for the provincial assembly last week.
But Irish nationalists Sinn Fein came within one seat of their rivals to deny unionist politicians a majority for the first time since Ireland was partitioned in 1921.
Reporting by Ritvik Carvalho; editing by Patrick Graham and Pritha Sarkar