The pound firmed against the dollar and euro on Wednesday as the European Union prepared to grant a further delay to Brexit, averting the possibility of Britain's departure from the bloc next week without a deal.
The prospect of another delay had initially hit sterling, which briefly dropped as low as $1.2841 on Wednesday in Asian trade before bouncing back to over $1.2990.
The pound is experiencing volatility on every Brexit twist and turn. Earlier this week the unit reached five-month highs above $1.30 on increasing hopes that a painful "no-deal" Brexit divorce would be averted.
"Like Brexit, the pound is bouncing around," said CMC Markets UK analyst David Madden.
"Traders are terrified at the prospect of a no-deal Brexit, but that currently seems very unlikely, which is assisting the pound," he added.
In stock market trading, London's benchmark FTSE 100 index climbed 0.7 percent, while eurozone equities were mixed and Wall Street edged higher.
The EU is set to grant another Brexit extension after British MPs on Tuesday rejected Prime Minister Boris Johnson's bid to force his divorce deal through parliament this week.
European Council President Donald Tusk has recommended that the EU's 27 other members grant an extension, likely until the end of January.
In the meantime, Britain could hold a general election aimed at ending the Brexit deadlock, according to analysts.
Elsewhere on Wednesday, Wall Street moved higher following a series of mixed earnings reports.
Shanghai's main stocks index closed down 0.4 percent and Hong Kong lost 0.8 percent, with traders keeping tabs on reactions to a Financial Times report saying China is drawing up a plan to remove Hong Kong's beleaguered chief executive after nearly five months of pro-democracy unrest.
In commodities trading, oil prices bounced higher after data indicated US oil and gasoline stockpiles decreased, easing worries about weak crude demand growth as the world economy slows.
- Peugeot, Boeing gain -
On the corporate front, shares in French carmaker PSA jumped 3.2 percent after the company said healthy demand for upmarket models helped it resist a slowdown in the global automotive market.
The maker of Peugeot, Citroen, DS, Opel and Vauxhall vehicles announced a one-percent gain in third-quarter sales to 15.6 billion euros ($17.4 billion).
Meanwhile shares in Boeing gained 1.0 percent despite missing analyst expectations by a wide margin as the 737 MAX crisis continued to weigh on results.
Investors took heart that the company confirmed it still expects to win regulatory approval this year to resume flights on the MAX.
"Overall, investors are pretty happy with the Q3 report mainly because it could have been worse," said a note from Briefing.com.
The MAX return "could have been pushed to early or mid-2020 or possibly later."
- Key figures around 2130 GMT -
Pound/dollar: UP at $1.2912 from $1.2872 at 2100 GMT on Tuesday
Euro/pound: DOWN at 86.19 pence from 86.43 pence
Euro/dollar: UP at $1.1131 from $1.1125
Dollar/yen: UP at 108.65 yen from 108.49 yen
New York - Dow: UP 0.2 percent at 26,833.95 (close)
New York - S&P 500: UP 0.3 percent at 3,004.52 (close)
New York - Nasdaq: UP 0.2 percent at 8,119.79 (close)
London - FTSE 100: UP 0.7 percent at 7,260.74 (close)
Paris - CAC 40: DOWN less than 0.1 percent at 5,653.44 (close)
Frankfurt - DAX 30: UP 0.3 percent at 12,798.19 (close)
EURO STOXX 50: UP less than 0.1 percent at 3,606.89 (close)
Tokyo - Nikkei 225: UP 0.3 percent at 22,625.38 (close)
Hong Kong - Hang Seng: DOWN 0.8 percent at 26,566.73 (close)
Shanghai - Composite: DOWN 0.4 percent at 2,941.62 (close)
Brent North Sea crude: UP 2.5 percent at $61.17 per barrel
West Texas Intermediate: UP 2.7 percent at $55.97 per barrel