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Sterling powered to its highest level of the year against the US dollar tonight amid hopes that the economic gloom is lifting.
The pound was up 1.69 cents to $1.5479, having at one point touched $1.5507 — its strongest since the middle of December.
It was also up 0.2 cents against the euro to 1.137 as pessimism about the state of the UK economy and the financial sector eased after months of turmoil.
The rally was good news for holidaymakers heading to the US or to Europe for the upcoming Bank Holiday or the half-term break.
Sterling has gained 13% against the greenback and 7% against the single currency since March.
Trips abroad are much cheaper now than they were over Christmas and in the first few months of this year.
However, the pound is still far weaker than it was this time last year, when it hovered around the $2 mark.
The latest rally came on news that the UK Government is preparing to sell its stakes in the part-nationalised banks and is already sounding out foreign investors.
UK Financial Investments, which manages the Government's 43% stake in Lloyds Banking Group and 70% stake in Royal Bank of Scotland, could start selling shares in the crippled lenders within a year.
Bank shares were on the rise and the FTSE 100 index was up 7.39 to 4453.84, which in turn lent further support to the pound.
“Sterling has a strong correlation with equities, particularly the financial sector, which would have helped,” said Russell Bloom, currency analyst at Action Economics.
Hopes of a successful exit from the banks — even though this is likely to take years rather than a few months — overshadowed some grim data on inflation.
This raised the prospect that the UK is in for a prolonged period of low interest rates and quantitative easing.
The Consumer Prices Index fell to a 15-month low of 2.3% last month, while the Retail Prices Index, which includes housing costs and mortgage payments, fell to a record low of minus 1.2%.
Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi in London, said: “The global rise in confidence is beginning to have a more notable impact on the pound.
“This is despite the Bank of England being one of the most aggressive proponents of quantitative easing.”
