The pound has hit its highest level since mid-September, as investors welcomed the appointment of Rishi Sunak and the dollar fell.
Sterling surged by 1.8% to $1.1488 on Tuesday – the highest it has been since before Liz Truss’s mini-budget.
Government borrowing costs also fell back, reflecting a greater degree of confidence among investors.
Financial markets have been in turmoil in recent weeks as concerns were raised over the UK economy.
Rishi Sunak, who became prime minister on Tuesday, has warned the country faces a “profound economic crisis” with “difficult decisions” ahead.
Experts said the pound’s strength was partly a “relief rally” after Mr Sunak was appointed, but also due to the dollar’s weakness.
The American currency dropped on Tuesday after data showed slowing US house price growth and a decline in consumer confidence.
“It’s largely a dollar story, the dollar is losing ground across the board today,” Jeremy Stretch, head of FX Strategy at CIBC, told the BBC.
“But sterling was already having a good day, there’s no doubt there’s a relief rally here in terms of apparent stability in the macro-economic picture after Sunak came in.”
