The pound hit a four-month high versus the euro on Tuesday and added to gains against the dollar on Wednesday as markets digested media reports that EU and UK authorities could reach a Brexit deal as early as next week.
Sterling was at its highest level versus the single currency since June, rising 0.4% to trade at 1.144 on Tuesday, Reuters reported.
Against the dollar it firmed 0.3 percent to as high as $1.3186 on Wednesday, its strongest level since Sept. 26, before easing back to trade flat at $1.3142.
Britain's ITV News reported late on Tuesday that UK and EU deal makers had made progress in negotiations over the Irish border issue, which could involve some border checks on goods between mainland Britain to Northern Ireland, but none between Northern Ireland and the Republic of Ireland.
The Times newspaper also reported that around 30 to 40 lawmakers from the opposition Labour Party were ready to to defy their leader Jeremy Corbyn and embrace the Chequers plan, the government's Brexit deal which Prime Minister Theresa May is trying to strike with the EU.
"I think the government would have enough Labour MPs who represent Leave constituencies that would back a Chequers-style deal, especially if it included elements of a customs union and that would see them through," one MP told the paper.
On Tuesday, UK's Secretary of State for Exiting the EU Dominic Raab expressed confidence that London will reach an agreement with Brussels on the withdrawal from the bloc "this autumn." However, the government continues to work on preparations in the event the country crashes out of the EU without a deal, he added.
In economic news, UK's industrial production was up 0.2% in August compared to the previous month, the Office for National Statistics (ONS) said in a report released on Wednesday.
In a separate report, the ONS said the country's GDP grew by 0.7% in the three months to August while the UK's trade deficit decreased by £4.7 billion to £2.8 billion in the three months to August. The UK's trade in goods deficit with EU member states fell by £2.4 billion, while it narrowed by £1.1 billion with non-EU countries in the three months to August 2018.