The pound has pushed higher against the US dollar and the euro on news that trade negotiations with the European Union (EU) are continuing.
In early London trade, sterling was up 1.2% against the dollar at $1.3390, while against the euro it rose 1% to €1.1020.
The pound hit a one-month low last week on worries of a no-deal Brexit.
Although the deadline was missed on Sunday, the EU and the UK agreed to continue negotiations.
UK Prime Minister Boris Johnson and the European Commission President Ursula von der Leyen will carry on talks “to see whether an agreement can even at this late stage be reached”.
Some analysts have warned that the rally in the pound might be short-lived, because Britain and the EU have repeatedly failed to reach a deal, and there is still a risk that one won’t happen.
“This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided,” Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo told Reuters.
A joint UK-EU statement said. “Despite the exhaustion after almost a year of negotiations, despite the fact that deadlines have been missed over and over we think it is responsible at this point to go the extra mile.”
Britain formally left the EU in January, but has since been in a transition period during which it remains in the EU single market and customs union.
The transition period ends on 31 December, and without a deal the trade relationship could be affected by tariffs and quotas.