With growth weak in Britain, many economists and investors want to see the UK expand fiscal spending to help weather the impact of Britain's departure from the European Union at the end of last month.
On Thursday, Prime Minister Boris Johnson forced the resignation of finance minister Sajid Javid after the latter refused to sack his advisers.
He was swiftly replaced by loyalist Rishi Sunak, which investors interpreted as a move to tighten Johnson's control over the Treasury and one that would pave the way for more public spending at a March budget. Javid was regarded as a fiscal hawk.
"Sterling may continue to hold the line against the dollar at close to $1.30 and stay firm against the weaker euro after the UK government reshuffle, which may lead to greater fiscal stimulus in next month's budget," analysts at UniCredit said in a note.
Expectations for a rate cut from the Bank of England before the end of 2021 have all but evaporated - money markets are now pricing in a full 25 basis point cut not before December 2021.
The pound rose marginally on Friday to $1.3048, retaining most of its gains from Thursday's move. It had traded below $1.30 before news broke of Sunak's appointment.
Against the euro the pound rose 0.1pc to 82.995, close to a two-month high.
Attention next week will turn back to the health of the UK economy, with employment, inflation and retails sales numbers all due.