The pound was on track for its best daily gain in over eight years on Tuesday (17 January), as Theresa May set out her strategy for Brexit negotiations, confirming Britain will leave the European Union and the single market.

Having fallen to a three-month low of $1.1983 early on Monday, sterling was relatively flat at around $1.2165 when May began speaking, before rising 2.4% to $1.2340 and €1.1442 as she outlined her plans.

The gain against the dollar, put the pound on track for its biggest daily advance since October 2008.

In her speech, the Prime Minister stated Britain will leave the single market but will pursue a "bold and ambitious" Free Trade Agreement with the European Union.

"This agreement should allow for the freest possible trade in goods and services between Britain and the EU's member states," May said.

"It should give British companies the maximum freedom to trade with and operate within European markets – and let European businesses do the same in Britain. But I want to be clear. What I am proposing cannot mean membership of the single market."

Shortly after the speech, the UK currency had pulled back slightly, but remained 1.44% and 0.40% higher against the dollar and the euro, fetching $1.2230 and €1.1435 respectively.

Kathleen Brooks, research director at City Index, said described the jump as a rare positive performance for the pound. "It is too early to know if the negative impact of politics on the UK currency is starting to wane," she said.

"However, if pound/dollar can continue this rally into the end of this week, and move back towards $1.25, then it could suggest that the UK currency is developing a natural resistance to Brexit."

Before the Prime Minister speech, data released by the Office for National Statistics showed inflation rose at the fastest pace in two and a half years in December, growing more than analysts had expected as the weaker pound translated into higher import prices.

Inflation rose 1.6% year-on-year in December, up from the 1.2% reading recorded in November and higher than the 1.4% figure analysts forecast.

Ben Brettell, senior economist at Hargreaves Lansdown, suggested despite the latest spike, inflationary trend over the long-term could remain lower than expected.

"The effect of the weak pound, assuming it doesn't fall much further, is a one-off factor which will fall out of the figures eventually," he said.

Meanwhile, analysts suggested the pound's rally against the dollar was also boosted by the latter's recent weakness, triggered by comments from Donald Trump.

The greenback was 0.70% lower against the yen, buying ¥113.40, and declined 1% and 0.91% against the Swiss franc and the Canadian dollar respectively, trading at CHF1.0016 and CAD$1.3055.

The dollar was also 0.78% lower against the euro, fetching 0.9358 euro cents, and traded 0.86% lower against its Australian counterpart, exchanging hands at $AUD1.3270.

In an interview with The Wall Street Journal, the US President-elect said the dollar was "too strong" because China was keeping its own yuan weaker.

"Our companies can't compete with them now because our currency is too strong, and it's killing us," he said.

Naeem Aslam, chief market analyst at Think Markets UK, said: "Trump has taken the wind out of dollar rally and his comments are impacting the dollar index.

"The upcoming president clearly not happy with dollar strength and investors are going to watch this space (his twitter account mainly) to see what measures he will take to weaken the dollar."