With the Bank of England anticipated to keep raising interest rates, the pound has surged to become the currency in developed economies that has performed the best this year.
Sterling has gained 2.3pc against the dollar this year, ahead of all others in the so-called G10 group of major economies. The pound has increased 3 per cent in value against the dollar over the past month, outpacing even the currencies of developing markets and defying doubts about the UK economy's prospects.
Both the Bank of England and Office for Budget Responsibility have improved their outlooks over the last month, with the latter saying the UK will avoid a recession this year.
Francesco Pesole, FX strategist at ING, said: "The pound is set to be the best-performing currency of the first quarter of 2023, having gained 2.5 pc against the dollar.
"Along with the improvement in the economic outlook, sterling is definitely drawing benefits from the market’s conviction that the Bank of England will need to continue raising rates." The probability that interest rates will rise by 0.25 percentage points in May is 75 per cent, according to traders. A 52 per cent chance of another increase of the same sum in June is factored into the pricing.