Sterling hit a two-month high against the dollar today, with investors betting the UK government would lose its battle to trigger the Brexit process without parliamentary approval.
The government is seeking to overturn a decision in the High Court last month that could derail its Brexit plans.
The court ruled that Prime Minister Theresa May could not trigger Article 50 of the Lisbon Treaty and begin two years of Brexit talks with the other EU members without parliamentary backing.
The pound surged after November's ruling.
Investors believed that greater parliamentary involvement would reduce the chances of a "hard Brexit" in which tight controls on immigration are prioritised over European single market access.
Sterling has climbed almost 6% against the dollar since the start of October, when it was trading around $1.20 on expectations for a hard Brexit.
This view was driven in large part by comments from May and other senior members of the ruling Conservative party at its annual conference.
November's court ruling - as well as the suggestion last week by Brexit minister David Davis that the government may be willing to pay into the EU budget in return for access to the bloc's single market - have helped the pound rise to five-month highs against the euro.
However it was slightly off those highs today at 84.37 pence.
Against the dollar, sterling climbed 0.4% to hit $1.2775, its highest since October 6.
Better than expected results from a monthly survey of service sector purchasing managers also pushed sterling a touch higher yesterday.
The hearing is due to last for four days but the verdict is not expected until January.
