Sterling extended this week's gains today as investors bet that a no-deal Brexit was less likely and that Britain's departure from the European Union would be delayed.
With the risk of no deal apparently dwindling, sterling has reached its highest against the dollar since September 2018 and its best level versus the euro since May 2017.
The pound also touched its strongest against a basket of its trading partners since April last year.
British Prime Minister Theresa May yesterday offered lawmakers the chance to vote in two weeks for a no-deal Brexit or to delay Britain's exit from the European Union if her attempt to ratify an agreement fails.
With a majority of lawmakers believed to oppose a no-deal Brexit, May's move opens up the possibility of a delay, removing the immediate threat of a disorderly exit on March 29.
The pound rose 0.3% to as high as $1.3286 in European trading, while it gained 0.2% against the euro, to 85.795 pence per euro, below yesterday's high of 85.63 pence.
Sterling has gained 4.5% versus the euro this year.
But uncertainty remains around when Britain will leave the EU and on what terms, making investors are nervous.
"Given the developments of the last few days, an extension is becoming more likely," asset manager Amundi said.
Sterling gains as investors believe no-deal Brexit now less likely pic.twitter.com/aolGDQVa9G
— RTÉ Business (@RTEbusiness) February 27, 2019
It cautioned that it was preparing for a "several months extension with prolonged uncertainty, not the technical extension that would very probably come with a deal scenario".