Sterling's rally came after news that European countries Spain and the Netherlands would be open to the United Kingdom having a softer Brexit.
The pound on Friday reached its strongest level against the US dollar since the June 2016 Brexit referendum, extending gains following a Bloomberg report that Spanish and Dutch finance officials will work toward the European Union reaching a so-called soft Brexit deal with the U.K. Sterling hit an intraday high of $1.3693, the highest the June 2016 Brexit referendum that sent the pound tumbling from around $1.50 on the day of the vote.
It gained more than 1% to its highest level since 24 June 2016 and was trading at $1.3733 on Friday evening.
Earlier today, there were reports that Dutch and Spanish finance ministers have agreed to work together to push for a Brexit deal that keeps Britain as close to the European Union as possible (see post).
It comes after a report by Bloomberg that said Spain and the Netherlands are potentially open to a soft Brexit deal for the United Kingdom in order to maintain trade ties.
The pound's weakness since the Brexit vote has had a major impact on the economy, because it has made the import of goods prices in euros and dollars more expensive.
"It's not so significant as the rally would suggest".
The TD Securities estimate uses the same modelling methods as the Treasury to calculate monthly inflation readings - official data is only released quarterly - giving traders a more timely insight into the pace of consumer price growth. Others said the pound would struggle to maintain Friday's gains without more positive news.
Sterling is set to remain volatile due to Brexit uncertainty.
Two-year gilt yields rose more than 5 basis points on the day to peak at 0.615 percent, their highest level since January 4, 2016.
Nomura currency strategist Jordan Rochester said the move higher for sterling was driven by a "big algo move", referring to an algorithmic trade, while he also played down attaching too much importance to the Bloomberg report.
"Even as someone who is long the pound, I'm sceptical this is a game changer at this stage", he said.