The British currency climbed 1.5% on the day to $1.28 , a five-month high and also the first time it has gone above the 200-day moving average of $1.2713 since May.
It also rose by the same margin against the euro and was last trading 1.4% higher at 86.29 pence.
Sterling has risen nearly 5% higher over the past week as investors rushed to reprice the prospect of a last-minute Brexit deal by the end of October 31 deadline.
"The reaction from the markets shows they want to get this deal over and they are ready to push the button at the slightest sign of a deal," said Morten Lund, a senior FX strategist at Nordea.
But he said he was "a bit more sceptical about the outcome" given how little time remained to negotiate and the difficulties of getting a deal through the British Parliament.
Talks aimed at reaching a Brexit deal with Brussels are continuing but there is still work to do, British Prime Minister Boris Johnson's spokesman said. Kenneth Broux, a corporate FX strategist at Societe Generale, said he expected the pound to rally to $1.30 and even $1.35 if a deal gets through parliament, where Johnson lost his majority just weeks into his term.
The FTSE250 of UK mid-cap stocks rose and European equity benchmarks extended their gains on the news.
British government bond yields shot higher. The two-year gilt yield rose to its highest level since Sept. 16 at 0.575%, up 7.5 basis points on the day. The move rippled into the broader European bond market with 10-year German government bond yields up 4 basis points to -0.41%, their highest in two and a half months.