Sterling shot past $1.30 on Tuesday on hopes that Prime Minister Theresa May will make progress in seeking changes to her Brexit deal with the European Union, although some traders struggled to explain the size of the move. After edging higher for much of the day, the pound then jumped in late European trading - rising almost one percent versus the dollar by 1615 GMT to hit its strongest since Feb. 5, at $1.3050. The pound was headed for its biggest one-day gain since January.
Against the euro, the British currency added 0.7 percent to 86.93 pence per euro.
"I'm fairly certain it's not news-related and it's due to technical factors," said Neil Mellor, currencies analyst at BNY Mellon, referring to some large buy orders reportedly in the market and triggered when sterling hit $1.30.
Some strategists pointed to media reports that May was dropping the so-called 'Malthouse compromise', a Brexit proposal that has united both eurosceptic and pro-EU factions within her divided Conservative Party.
Markets appear to have taken the media reports as a sign that Britain is becoming more realistic in renegotiating its agreement with Brussels, Nomura analyst Jordan Rochester said in a note to clients, amid broader hopes that the EU and UK are making progress in their talks.
"By default seeing both sides take action at this stage lowers the markets' hard Brexit probability by a small margin," Rochester said, adding that Nomura remained long sterling.
May will meet EU Commission chief Jean-Claude Juncker in Brussels on Wednesday, pressing on with efforts to find a way to get their Brexit deal through Britain's parliament and overcome domestic opposition to arrangements for the Irish border after Brexit. .
Still, the size of the move against both the dollar and the euro underlined the sensitivity of sterling ahead of Brexit.
With just six weeks until Britain is due to leave the bloc, May has yet to win the support of British lawmakers for her deal and investors are skittish.
Economic data has assumed less importance in recent months as the scheduled Brexit departure date of March 29 approaches but decent wage growth data on Tuesday, though slightly below expectations, did the pound no harm.
Despite the wage growth, markets have pared back their expectations for Bank of England monetary policy tightening this year, given the uncertainty over the sort of Brexit Britain is headed for.
"The most recent data on the UK labour market continues to be strong on the whole," said David Cheetham, market analyst at online broker XTB.
British opposition Labour leader Jeremy Corbyn said his party was keeping all options open on Brexit, including another referendum. May has roundly rejected Labour's proposal for a permanent customs union with the EU.
Concerns about Britain's economy were underscored by Japanese carmaker Honda's announcement on Tuesday that it would be closing its UK plant, leading to the loss of 3,500 jobs. Honda said the decision was unrelated to Brexit.
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