Sterling soared more than 1% today on hopes that Britain could secure a Brexit trade deal with the European Union by October or at least avoid a cliff-edge exit from the bloc.
A final agreement must be reached by the end of December but both sides have set a preliminary deadline for next month as it would take some time to sign off any deal.
The European Union and Britain started a decisive week of talks today.
An EU diplomat said last week that "the mood music was a bit better" after Britain's Brexit supremo Michael Gove expressed confidence about securing a trade deal.
"If discussions this week lead to a break through in fisheries and level playing field then we could hopefully land an agreement by October 15," Kenneth Broux, head of corporate foreign exchange at Societe Generale, said.
The Bank of England Deputy Governor Dave Ramsden's comments today saying he thought the floor for the central bank's key interest rate was 0.1% could also have helped the pound.
But his views were already known in the media, Broux said.
The Bank of England and the European Union's securities watchdog said today they had agreed on the information-sharing arrangements needed for the bloc's banks to continue using clearing houses in London from January.
Sterling was trading hands at $1.2904, up 1.3% on the day. It also rose by 1% against the euro to hit a 20-day high of 90.30.