By Anneken Tappe

The U.S. dollar strengthened in Friday trading but still looked set for its worst weekly performance in a month, while the British pound was pushed sharply lower after Prime Minister Theresa May spoke about the possibility of a "no deal" Brexit.

The ICE U.S. Dollar Indexwas 0.4% stronger at 94.257 on Friday but headed for a 0.7% weekly decline, its worst in a month. Shorter-dated U.S. Treasury yields were on the rise on Friday (http://www.marketwatch.com/story/10-year-treasury-yield-steadies-as-focus-shifts-to-fed-gathering-2018-09-21), with the 2-year yieldrising to 2.821% and the 10-year yieldholding above 3%, which lent some support to the greenback.

On the Brexit front, European Union leaders rejected the U.K.'s post-Brexit proposal (http://www.marketwatch.com/story/uk-leader-theresa-may-under-pressure-after-eu-leaders-rebuff-her-brexit-plan-2018-09-21), adding pressure for the prime minister, whose Conservative Party is holding its annual conference next week.

May then said in a speech that the U.K. must and will continue to prepare for the possibility of a "no deal" Brexit in which the U.K. leaves the European Union without an agreement governing its future relationship in place.

"Theresa May's statement came in line with what we expected, a reminder of where we are with negotiations and a summary of the frustrations for the U.K. team," said Nomura strategists led by Jordan Rochester. "But the market did not like its tone during the early part and has yet to recover as the fast money had been building longs in sterling over the past couple of days."

The next Brexit summit is scheduled for November, but this week's talks in Salzburg, Austria, seem to have soured the mood amid both politicians and investors.

The British poundwas thus unable to hold on to its gains from earlier in the week (http://www.marketwatch.com/story/dollar-slides-as-british-pound-and-new-zealands-kiwi-rally-on-data-2018-09-20) when hopes for a Brexit resolution had been high, and sharply dropped to its lowest since last week. Sterling last fetched $1.3076, down from $1.3268.

Read:Far-right candidate leads Brazil's polls as investors worry about reforms, ailing real (http://www.marketwatch.com/story/far-right-candidate-leads-brazils-polls-as-investors-worry-about-reforms-ailing-real-2018-09-20)

Elsewhere in Europe, Italy's governing coalition is under pressure as the leader of the 5 Star Movement has threatened to leave over public spending that would widen the deficit. 5 Star leader Luigi di Maio and Northern League leader Matteo Salvini have clashed with Finance Minister Giovanni Tria over Italy's budget plans. Investors are awaiting the budget proposal, which some worry won't be in line with the EU requirements and could lead to a spat between Rome and Brussels.

The eurowas modestly lower at $1.1743, compared with $1.1779 late Thursday in New York.

Among other currencies, the Canadian dollarbriefly dipped versus its U.S. rival, following comments from White House economic adviser Kevin Hassett that the U.S. was "very, very close" to going ahead with a trade deal with Mexico alone and excluding Canada, according to a Reuters report (https://www.reuters.com/article/us-trade-nafta/us-very-close-to-proceeding-with-mexico-only-trade-deal-trump-adviser-idUSKCN1M11SH). The countries have been renegotiating the North American Free Trade Agreement since August last year.

The greenback last bought C$1.2925, down from its Friday high of C$1.2945.

Meanwhile, the buck bought 18.8042 Mexican pesos , down from 18.8275 late Thursday.

(END) Dow Jones Newswires

September 21, 2018 14:47 ET (18:47 GMT)