Brexit vote: Pound soars against dollar and euro as optimism over deal rises

Sterling makes gains as Theresa May secures 'legally binding' agreement with EU over Irish backstop

The pound has risen against the dollar and the euro on the back of renewed optimism that a no-deal Brexit will be avoided.

Sterling rallied towards 22-month highs at close to €1.18 on Monday night, before retreating to be quoted at €1.17 on Tuesday morning.

Against the dollar the pound approached the $1.33 mark after news that Theresa May had reached a “legally binding” agreement with the EU on the Irish backstop.

The UK currency fell back slightly to $1.315 ahead of a second meaningful vote on the prime minister’s deal scheduled for Tuesday evening.

Crashing out of the EU with no deal would likely cause a significant reduction in the purchasing power of the pound as investors become more pessimistic about the future of the UK economy.

That would mean more expensive holidays for British tourists and would feed through into higher prices for a range of goods in the UK as imports become pricier.

The latest official figures released on Tuesday suggested that the economy bounced back from a worse-than-expected December, registering 0.5 per cent growth in January.

In the short-to-medium term, growth is largely dependent on an bringing an end to the uncertainty surrounding Brexit which is causing firms to hold off investment.

Following last-ditch talks in Strasbourg, Ms May said she has now delivered what Parliament asked her to do and that the UK could no longer be trapped in the “Irish backstop” indefinitely.

The prime minister will now put the new-look deal to MPs, who will vote on it during the second meaningful vote on Tuesday evening.