The pound climbed on Monday after new data showed better-than-expected economic growth in July.
The surge in the currency came even as MPs prepared to hold a second vote on another general election.
Prime minister Boris Johnson’s government will ask the House of Commons to back a snap election, even though opposition parties have insisted that the law designed to block a no-deal Brexit must be implemented first.
The pound had fallen sharply earlier on Monday against the dollar, with analysts pointing to weekend reports that Johnson could ignore the law.
“Having spent a good portion of last week rallying in the face of Boris Johnson’s political problems, the weekend’s developments haven’t been greeted with as much glee by the pound,” said Conor Campbell, an analyst at Spreadex.
Legal experts have said that Johnson could be sent to prison if he refuses to comply with the law, which requires him to send a letter to the EU to seek a Brexit extension if his government has not negotiated a deal with the bloc.
Meanwhile, an early general election would throw the UK into further uncertainty, with the prospect of a snap vote spooking currency traders.
Late on Friday, the currency fell below $1.23, the high watermark it hit on Thursday after a rebel group of MPs inflicted a series of stunning defeats on Johnson’s government.
The alliance is expected to retain control of parliament on Monday, denying Johnson the election he desires.
Under rules introduced in 2011, a vote to hold an early election must secure the backing of 66% of MPs.
The rebels have also said that they will take Johnson to court in the event he refuses to seek an extension.
Later this week, parliament will be suspended until shortly before the 31 October Brexit deadline, with Downing Street billing Monday’s vote as Labour’s “last chance” to back a general election.
The pound is extraordinarily sensitive to Brexit developments, and has been severely dented since the 2016 Brexit vote.
Less than a week ago, the currency fell to its lowest level in three years, and sank below $1.20 for an extended time for the first time since 1985.