Sterling rallied against the dollar and the euro today on media reports that Prime Minister Theresa May will propose formally ruling out a no-deal Brexit. 

As the UK's Brexit crisis goes down to the wire, May is making a last-ditch effort to get changes to the divorce package but politicians will try tomorrow to grab control of Brexit in a series of parliamentary votes. 

Against the euro, the pound rallied nearly half a percent to a one-month high at 86.31 pence. It also gained 0.4% against the dollar at $1.3160. 

The optimism in the spot markets has not rippled over to the derivative markets yet with one-month implied volatility gauges on the pound, a market indicator for future expected swings, edging lower but within striking distance of a six-week high.

Risk reversals painted a slightly bullish picture with one-month gauges creeping higher in overnight trading.

However, market analysts say a short delay on Brexit negotiations is priced into the market and further gains for the pound would be difficult.

A large buildup of options between $1.34 to $1.35 levels indicate that investors are not convinced the rally will last.