The pound jumped past the $1.30 mark after suggestions that the EU and UK could yet reach a post-Brexit trade deal cheered investors.
Sterling was up 0.8 per cent by around 2.30pm UK time at $1.203. It was 0.6 per cent higher against the euro at €1.108.
Prime Minister Boris Johnson and European Commission boss Urusla von der Leyen are set to talk about the potential trade agreement this afternoon.
Markets have been buoyed by reports that both sides are keen to reach a deal. The pound reversed the falls seen earlier in the day.
Bloomberg reported that the UK government is set to continue negotiating past the original deadline. The report said the PM’s advisers are set to tell him that a deal is possible if intensive talks can begin soon.
Meanwhile, a German government source told Reuters that Berlin wants to negotiate over a post-Brexit deal as long as possible.
Pound traders ‘welcome’ new talks
Connor Campbell, market analyst at Spreadex, said: “Sterling got, if not exactly what it wanted, then the second best thing on Wednesday.
“One day before Boris Johnson’s self-imposed Brexit deadline, the UK government blinked, signalling that negotiations will continue beyond this Thursday.”
Fawad Razaqzada, market analyst at trading platform Think Markets. said: “This will not remove Brexit uncertainty.
“But pound traders have welcomed the development as it potentially reduces the chances for a no-deal exit.” He said this had provided some “breathing space” for the currency.
However, Razaqzada pointed to other reports that said EU leaders are preparing to say no breakthrough has been found. This means the pound could be in for some more volatility yet.
Sterling’s jump hurt the FTSE 100, which was down 0.3 per cent at 5,950 points. A higher pound makes the overseas earnings of the index’s multinational firms worth less in relative terms.