Sterling surged to a four-week high close to $1.25 today, after the UK High Court ruled that the government needed parliamentary approval to trigger Brexit and as the Bank of England scrapped plans to cut interest rates.
The court ruling offered hope to investors worried that Prime Minister Theresa May's cabinet is set on an economically disruptive "hard Brexit".
Investors reckon lawmakers - a majority of whom supported staying in the EU in June's referendum - will push for Britain to keep access to Europe's single market.
Sterling climbed as much as 1.5% to hit $1.2494, its strongest since October 7 - the day a "flash crash" briefly sent sterling plunging 10% in a matter of minutes.
That left it on track for its best week in eight months, after an almost 2.5% climb.
Shares in European banks - another big source of concern in the Brexit process - gained 1.7%, while UK midcaps, more geared to the domestic economy than their blue chip peers, jumped 1.5%, significantly outperforming the more globally-focused FTSE 100.
The government said it would appeal the judgement at a Supreme Court hearing set for early December.
Analysts said that while the ruling may be reversed when appealed at the start of December, the decision does offer hope to 'remainers'.
"In the best case scenario, it won't pass through parliament and the Brexit referendum will have been for nothing. (That) is still unlikely at this stage as the political backlash could be extreme but still, this ruling does offer hope and this is why we've seen sterling spike," they added.
Other analysts said the impact of the court decision would be far more limited, and many said lawmakers were unlikely to block the formal invocation of Article 50 of the EU constitution, which triggers exit negotiations.
A number of traders also stressed that the pound's bounce looked like a short-term correction to the falls of the past four and a half months, which have knocked almost a fifth off its value.
Against the euro, sterling rose much as 1.9% to hit a four-week high of 88.595 pence.
Having already surged on the High Court ruling as well as data showing a growth spurt in Britain's dominant services sector, sterling was further boosted by the Bank of England's latest inflation report.
The bank said in the report that the chances of a rate hike had risen since its last quarterly report.
The Bank of England cut rates to a record low of 0.25% in August and said they would cut them again in order to deal with the economic fallout of Britain's vote to leave the European Union.
But sterling's plunge since then has sent inflation expectations soaring.
