The pound recovered Tuesday against the dollar and euro as Prime Minister Boris Johnson looked set to secure a general election before Christmas that might break the Brexit deadlock.
Traders also followed a meeting of the US Federal Reserve (Fed) that was expected to end with the central bank announcing an interest-rate cut on Wednesday.
Around 1645 GMT, sterling traded at $1.2886.
The dollar was also weighed down by weaker than forecast US consumer confidence figures, said Fiona Cincotta, senior market analyst at City Index.
The euro fell to 86.20 pence.
"Sterling rebounded from a low of $1.2810 to session high of $1.2897 on news that Labour would support a general election," Cincotta remarked.
"However, this could also be as close as the public will get to a vote on Brexit," she noted, adding that "under these conditions the results could in fact create more gridlock in Westminster."
Britain appeared headed for a December election after Labour, the main opposition party, said it would support Johnson's call for a pre-Christmas vote.
Labour leader Jeremy Corbyn said the decision by European Union leaders on Monday to again delay Brexit meant that "for the next three months, our condition of taking 'no-deal' off the table has now been met".
David Cheetham, chief market analyst at XTB trading group, said "the pound will likely stay fairly well supported unless a no-deal outcome becomes more than marginally possible once more".
He added: "Elections are often seen as bringing heightened uncertainty and therefore negative in the near-term for affected markets, but in this case there is a hope that it will bring an end to the present quandary we find ourselves in."
In equities trade, London's benchmark FTSE 100 index was down 0.3 percent at the close, as the stronger pound weighed on share prices for multinationals that have substantial earnings in dollars.
In the eurozone, Frankfurt's DAX 30 closed essentially unchanged, while the Paris CAC 40 was 0.2 percent higher.
Asian stock markets had turned in mixed results earlier in the day, while in New York, the Dow showed a slight gain of 0.1 percent in midday trading.
Expectations for at least one US rate cut and some strong company earnings have provided some support towards the end of a rollercoaster year on global trading floors.
A Fed press conference after its meeting "is set to be highly scrutinized with the markets looking to see if another cut is in the offing for this year," analysts at the Charles Schwab brokerage said.
Oil prices turned in mixed results amid reports of another pick-up in US stockpiles that indicated weak demand growth.
In London, shares in oil giant BP shed 3.8 percent to 492.55 pence after it reported poor third quarter results.
- Key figures around 1645 GMT -
Pound/dollar: UP at $1.2886 from $1.2863 at 2100 GMT
Euro/pound: DOWN at 86.20 pence from 86.29 pence
Euro/dollar: UP at $1.1108 from $1.1100
Dollar/yen: DOWN at 108.89 yen from 108.95 yen
London - FTSE 100: DOWN 0.3 percent at 7,306.26 points (close)
Frankfurt - DAX 30: FLAT at 12,939.62 (close)
Paris - CAC 40: UP 0.2 percent at 5,740.14 (close)
EURO STOXX 50: DOWN 0.1 percent at 3,622.09
Tokyo - Nikkei 225: UP 0.5 percent at 22,974.13 (close)
Hong Kong - Hang Seng: DOWN 0.4 percent at 26,786.76 (close)
Shanghai - Composite: DOWN 0.9 percent at 2,954.18 (close)
New York - Dow: UP 0.1 percent at 27,116.94
Brent North Sea crude: UP 0.2 percent at $61.72 per barrel
West Texas Intermediate: DOWN 0.1 percent at $55.73 per barrel