The pound has fallen sharply on increasing speculation that Boris Johnson may be preparing for a general election.
Sterling slipped by more than a cent against the US dollar towards $1.20 and was nearly a cent lower versus the euro, dipping below €1.10.
That helped boost the FTSE 100, which was up 1.4%, or 100 points during the session. It later gave up some of those gains to close 1% higher.
The FTSE’s multinational companies tend to see their stock rise when the pound weakens since they generate most of their earnings outside the UK.
The pound has been wracked by Brexit uncertainty ever since the 2016 referendum and pressure on the currency has intensified in recent weeks as the prospect of a no-deal scenario grows.
Its latest decline against the dollar took it close to two-and-a-half year lows recorded last month.
The fall came amid speculation that the prime minister was ready to call an election should MPs, possibly including Tory rebels, vote to delay Brexit in order to avoid a no-deal scenario.
Meanwhile, a monthly survey suggested that the UK manufacturing sector last month shrank at its biggest pace since 2012, adding to fears of a recession.
Analysts at Rabobank said in a research note: “If GBP [the pound] was looking remarkably resilient to UK political news at the end of last week, its nerve has given way this morning.
“The pound has fallen sharply ahead of what promises to be a week full of twists and turns in Westminster.”
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