Pound surges as market fears of no-deal Brexit ease

The pound has surged to a 22-month high versus the euro as expectations grow that a hard Brexit is looking less likely.

Sterling - which crashed in value following the UK's vote to leave the EU - hit €1.16 on Tuesday morning.

It has not reached that level since May 2017, and went on to close at €1.153.

The currency also rose by more than a cent against the US dollar to climb above $1.32 - its highest value since October, before closing a cent lower.

Its strengthening was put down to speculation Theresa May could delay Brexit or even rule out a no-deal scenario to prevent a rebellion within her cabinet.

:: May commits to votes on no-deal or Brexit delay

She later told MPs that if her Brexit deal is rejected next month, they would be offered two separate votes by 13 March on whether the UK leaves with no deal or delays Brexit beyond the current 29 March deadline.

Sterling slipped back slightly after the PM told the Commons that an extension would not make getting concessions from the EU any easier.

The pound has become a Brexit barometer for financial markets, with its value going up the more investors see the chances of a soft Brexit or the UK's departure from the bloc being potentially stopped.

The Times had earlier reported that three senior ministers would resign if the PM did not guarantee that Brexit could be delayed.

Labour also toughened its stance on the prospect of a cliff-edge exit, saying on Tuesday its second referendum plan would urge a "credible Leave option and Remain" - but would not contain the option of a no-deal departure.

Sterling's surge hurt values on the FTSE 100 index as many of its constituent companies earn the bulk of their revenues in foreign currency - especially dollars.

That is because the value of those sales is reduced when booked in the UK.

London's top-flight index was down by 1.2% at the 7,100 point level in late morning trade - before clawing back some of that ground after the PM's statement.

It settled to close down 0.45% on the day at 7151 points.

Nevertheless it was lagging the performances of its European peers who were trading only slightly lower following rallies on Monday linked to hopes of an end to the US-China trade war.

Neil Wilson, chief market analyst at Markets.com, wrote: "You have to wonder what the FTSE will hit if the pound ramps to around $1.40 on a positive Brexit deal - are investors prepared for this?

"Sterling has rallied on movements in the political space that have encouraged the bulls.

"First, Labour is now backing a second referendum - one u-turn.

"If anything, though, this just hints at the party worrying about an exodus to The Independent Group.

"Secondly, and more importantly, there appears to be building pressure on the prime minister to take no deal off the table - another u-turn.

"If no deal is abandoned, it would likely entail a delay to Brexit, and whilst assuaging concerns about crashing out without a deal in place, it would not remove all the uncertainty."