Sterling today extended its recent run after European Commission President Jean-Claude Juncker said that agreeing a Brexit deal with the United Kingdom was still possible.
Jean-Claude Juncker said a withdrawal agreement could happen if the backstop, which the British government wants removed, could be replaced with alternatives.
British Prime Minister Boris Johnson has vowed to take his country out of the EU on October 31, with or without a deal.
But UK lawmakers have voted to force him to seek a delay to the departure if he cannot strike a new agreement with Brussels.
Boris Johnson's government has since stepped up efforts to try and renegotiate the deal agreed by previous Prime Minister Theresa May but repeatedly rejected by Britain's parliament.
Foreign Minister Simon Coveney said today that London and the EU were not yet close to a Brexit deal that could resolve the backstop problem but he added that the "mood music" had improved.
Building on overnight strength, sterling rallied as much as 0.5% against the dollar to a two-month high in early trade, and it powered to a four-month peak against the euro at 87.87 pence.
Sterling has risen from under $1.20 earlier this month as investors slashed their bets against the pound because of perceived receding risks of a no-deal Brexit.