Sterling has hit a seven-month high against the dollar and is up against the euro – relieving fears for holidaymakers looking at tight budgets this year.
At the close of trading on international exchanges last night £1 stood at $1.6016, up 0.3 per cent.
This is 19 per cent above the low of $1.36 in January this year – the lowest level in over two decades.
Against the euro, £1 was worth €1.15 in early trading this morning, having fallen close to parity earlier in the year.
While holidaymakers and importers will release a sigh of relief at the move, the news could be bad for the UK economy, with a weak pound seen as a boost to exports through the recession.
The rise in sterling comes despite a recent warning from Standard and Poor’s over the outlook for the UK’s AAA credit rating.
With UK interest rates now at their lowest ever (just 0.5 per cent), comments from a European Central Bank (ECB) policymaker, indicating the bank could cut interest rates further, sent the euro lower.
David Lamb, head of Treasury Services at No1 Currency, said: "Why is sterling so strong? Many believe the pound was undervalued around the turn of the year and there has certainly been an upsurge in investor flows as demand increases for similarly undervalued UK assets.
"The measures taken by the Bank of England in the face of crippled credit markets and a deep recession have also been favourably received and many economists now believe the worst of the recession may be over."
He added sterling was likely to settle at around $1.55 in the short term, but there "will be a push towards €1.20 over the next couple of months".
