Sterling rose above $1.3 after British opposition Labour Party said it was “highly likely” to back any attempt by politicians to prevent a disorderly no-deal Brexit.
With little time left until the March 29 Brexit deadline, there is no agreement in London on how or even whether it should exit the world’s biggest trading bloc.
But sterling is gaining as investors buy the currency, betting that a no-deal Brexit can be avoided if parliament exerts greater control over the process.
“Overall the view is parliament doesn’t want a hard Brexit and nor does the EU… and if that’s the case I don’t see how it can happen,” said Justin Onuekwusi, a fund manager at Legal & General Investment Management.
“We are neutral on sterling as you have to be quite nimble,” he added.
Sterling strengthened 0.3 percent against the dollar to $1.3013, a two-month high. It also rose for a third consecutive day versus the euro to 87.33 pence.
A sustained rally in sterling could be scuppered if Brexit is delayed, said Thu Lan Nguyen, an FX strategist at Commerzbank in Frankfurt.
“Delaying is far from finding a solution… hard-line Brexiteers would never tolerate an indefinite delay of the EU exit,” she said.
The pound was boosted on Tuesday by strong employment data which suggested Britain’s labour market remained robust despite an economic slowdown ahead of Brexit.
Foreign exchange strategists polled by Reuters last week saw the pound gaining more than eight percent against the US dollar this year – assuming Britain and the EU part ways amicably.
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SOURCE: Reuters news agency