Sterling rebounded from early lows today and headed towards a five-week high as surprisingly strong data and growing optimism that Britain will not crash out of the European Union without a deal boosted demand for the British currency. 

Against the dollar, the pound gained 0.6% to $1.235 after weakening 0.2% to $1.2233 earlier. 

It hit a one-month high of $1.2353 last week. 

Compared to the euro, it also gained 0.36% to 89.5 pence. 

Boris Johnson last week failed to win enough support from lawmakers to call an early election and parliament also approved a bill which aims to block a no-deal Brexit at the end of October. 

That would force Johnson to seek a delay to Brexit. 

Sterling had a rollercoaster week during which it plunged to three-year lows before rebounding strongly as lawmakers voted to block a no-deal Brexit. 

In a note published last week, strategists at Goldman Sachs raised the probability of a Brexit deal to 55% from 45% earlier and cut the likelihood of a "no deal" to 20% from 25% previously. 

However there is some uncertainty on whether the EU will allow an extension, while the Daily Telegraph reported Johnson has prepared plans to legally stop any Brexit extension. 

The uncertainty prompted hedge funds to unwind some of their negative bets against the British currency.

The pound also received a rare boost from surprisingly strong economic data. 

Economic output in July alone was 0.3% higher than in June, the Office for National Statistics said.

This marked the biggest rise since January and topping all forecasts in a Reuters poll of economists that had pointed to a 0.1% increase.