The breakthrough, which is sure to worry British exporters, was described by analysts in the financial markets as a side-effect of the dollar's strength. It reached its highest level for more than four years, thanks to the strength of the American economy and the prospect of further increases in interest rates across the Atlantic.
But comments by Robin Cook, the shadow foreign secretary, indicating that a Labour government will be in no hurry to take Britain into the single currency, also helped underpin the pound.
Mr Cook's announcement that Britain was unlikely to join during the course of the next parliament meant sterling once again benefited from its status as a safe haven from EMU.
The weekend meeting of European finance ministers in Noordwijk was seen as making it more likely that the single currency will start on time but with a loose interpretation of whether or not countries satisfy the economic criteria.
A newly rising exchange rate will help take the pressure off Kenneth Clarke when he is advised by the Governor of the Bank of England, Eddie George, at Thursday's meeting, to increase base rates. Figures since their last meeting have pointed to a buoyant economy. In the Chancellor's own words, "Britain is booming."
But most City economists think it will fall to the next Chancellor - and they believe it will be Gordon Brown - to raise rates soon after the election. This prospect is helping to underpin the strong pound.
In an active day's trading, gilts also soared on the tail of other government bond markets. And shares closed higher too, the FTSE 100 index ending up more than 35 points at 4,271.7.
"The dollar is dominant, but it was a nice psychological moment for sterling yesterday," said Alison Cottrell at Paine Webber. She, like other analysts, predicted the pound's new show of strength would continue.
Gerard Lyons, chief economist at DKB in London, said: "The dollar is the key. The economic fundamentals are better in the US than either Germany or Japan. The pound has risen on the dollar's coat-tails."
Since the US Federal Reserve raised interest rates by a quarter point at the end of last month there has been fresh evidence of the robust economic outlook. Friday brought figures showing another big increase in employment and rising wage costs.
The currency markets were also reassured by comments from US Treasury Secretary Robert Rubin, visiting Japan at the end of last week. He indicated that the US administration would not rely on a weak dollar to correct the country's trade deficit with Japan.
The dollar passed the 125 mark for the first time since February 1993. Analysts see 130 as the next target.
It also passed DM1.71, the highest level for three weeks, before ending just below that level after profit-taking in European trading.
However, the weekend's single currency developments also favoured the pound against the mark. The German currency was weak across the board against other EU currencies.
Along with Chancellor Helmut Kohl's decision to stand for re-election, the Noordwijk meeting persuaded investors that the political impetus towards EMU had been renewed.
This suggests that there could be a greater degree of flexibility in deciding which countries will qualify - or in other words, more fudging of the Maastricht criteria. Eric Fishwick at Nikko Europe said: "The markets have scented a softening of tone on the part of Germany."Reuse content