The pound fought back after a torrid week, amid relief over Prime Minister Theresa May’s plans to allow a Commons vote on her Brexit strategy.
Sterling bounced back against most major currencies, up a cent to $1.22 and a cent higher at €1.11, having been hammered in recent sessions on Brexit fears and suffering a dramatic hit in last Friday’s flash crash.
The relief rally comes as the UK government looks set to back a Labour call for parliament to be able to “properly scrutinise” May’s Brexit plans before the formal EU exit process begins.
Kathleen Brooks, research director at City Index, said: “If parliament can debate the plans, then the Prime Minister may have to soften her approach to negotiations, which could remove some of the market fears about the negative economic impact of Brexit.”
But City experts warned there may still be further falls for the battered pound.
Neil Wilson, markets analyst at ETX Capital, said: “This relief rally looks like a dead cat bounce. It could just be a short pause before sterling takes another leg lower towards $1.20.”
In equity markets, the FTSE 100 Index slipped back after hitting a new intraday record of 7,129.83 yesterday.
The top tier’s performance is closely linked to the pound, with sterling’s gains sending it lower as many of the firms listed on the FTSE 100 make their earnings overseas and benefit from a weak pound.
The London market was also dragged lower after Wall Street closed down 1 per cent overnight and following equity falls across Asia.
Brooks said the pound was set to remain under pressure, with Brexit negotiations just one of many factors pushing sterling lower.
She added: “There are many barriers to a pound recovery, including low interest rates from the Bank of England and strength in other currencies, such as the yen and the US dollar, where interest rates could rise in December.”