The prospect of British Prime Minister Boris Johnson resigning caused the British pound to appreciate significantly on Thursday.
The national currency, which had recently come under significant pressure due to the uncertain political situation, gained 0.7 cents to $1.202.
The pound appreciated by around 0.5 cents against the euro to 1.1757 euros.
The pound fell to a two-year low of $1.1876 against the dollar on Wednesday afternoon but has since appreciated.
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The FTSE 100 stock index, on the other hand, did not react, maintaining its firm trend with a gain of 1.1 percent.
“Financial markets favor safety and this is no different,” said Saxo Markets trader Mike Owens.
However, forex market analyst Fawad Razaqzada said the reaction in the currency markets was muted as many investors were preparing for the prime minister's departure.
Forex markets are hoping that a new prime minister will restore Conservative unity and enable more effective governance in the current crisis environment, Valentin Marinov, head of G10 currency research at Credit Agricole, told Bloomberg.
Other strategists, however, consider the upgrade to be only temporary.
This rally is strange, Jordan Rochester, currency strategist at Nomura, told Bloomberg.
It is unclear whether a new prime minister will be able to give the economy more impetus.
Investors followed more a mood impulse.
Markets have not been particularly bothered by the political turmoil so far, said markets.com analyst Neil Wilson, as there is not much political risk to assets in the UK.
However, a resignation makes Johnson's tax cuts more likely because fiscal easing is always a likely result of political pressure.
This in turn makes higher inflation more likely and generally weighs on the exchange rate of the pound.
Positioning in the direction of devaluation has recently increased on the derivatives market.