LONDON: The pound enjoyed a rebound on Wednesday (Nov 28) after the British government released a number of post-Brexit economic scenarios that, although dismal, still look better than what markets had been expecting, dealers said.
They said London's assessment that the UK will be worse off outside the EU than inside hardly came as a surprise, but its predictions of lost economic growth were actually more optimistic than many had feared.
"It is a relief that output would 'only' drop 3.9 per cent in the long term, as some economists had predicted much severe economic damage from leaving the EU," said Fawad Razaqzada, a market analyst at Forex.com.
'NOT EXACTLY SCRAMBLING'
"However, despite the rebound, it is worth pointing out that investors are not exactly scrambling to buy the pound, with the currency still remaining in the lower half of its recent trading range," he noted.
European stock markets meanwhile were mostly steady at the close, with investors shrugging off more trade war rhetoric between the US and China ahead of a planned meeting of both countries' leaders later in the week.
Wall Street showed solid gains in the late New York morning.
Remarks by China's President Xi Jinping, who told Spanish lawmakers on Wednesday his country would boost protection of intellectual property, went down well with investors ahead of a G20 meeting where he faces a trade showdown with the United States.
But the softer rhetoric should be weighed against a resurgence in trade tensions, said David Cheetham, chief market analyst at XTB.
"The latest news on the trade wars front has been pretty much constantly negative of late with US President Trump firing off several broadsides as China, European automakers, Apple and GM have all come under fire," he said.
Also on the radar is a speech later in the day by Fed boss Jerome Powell, which comes a day after Vice Chairman Richard Clarida hinted at a more cautious approach over US interest rate rises.
Expectations that rates would continue to rise through to 2020 - making it more expensive to borrow for investing - have weighed on global markets this year.
Powell's speech also comes a day after Trump said the Fed chief was "way off base" for continuing with his tightening policy.
ITALY TWEAK 'INSUFFICIENT'
"Realistically, sterling's gains came from issues with the dollar and the euro, not any (UK) domestic strength," said Connor Campbell, analyst at Spreadex trading group.
"The greenback may be in retreat following Larry Kudlow's attempts to ease investors' trade war fears - the dollar now less immediately needed as a safe haven - while the single currency was hurt by a dip in German consumer confidence," he said in reference to White House economic advisor Kudlow.
Also in Europe, a reduction in Italy's public deficit to 2.2 per cent, as some government officials have suggested, would be insufficient to avoid EU sanctions, European Commission Vice President Valdis Dombrovskis said on Wednesday.
The European Commission last month rejected the budget submitted by Italy's populist government, as the mooted deficit was three times the 0.8 per cent the previous centre-right government had planned.
Elsewhere, Asian stock markets advanced on hopes for a positive outcome from Trump's high-stakes trade talks with his Chinese counterpart Xi.
Oil dropped after the US reported a tenth straight weekly increase in stockpiles, adding to fears of an oil supply overhang.
Russian President Vladimir Putin said on Wednesday he was "completely satisfied" with the current oil price, an indication that OPEC and its partner countries including Russia may abstain from aggressive production cuts to prop up the oil price when they meet in Vienna next week.
Key figures around 1640 GMT:
London - FTSE 100: DOWN 0.2 per cent at 7,004.52 points (close)
Frankfurt - DAX 30: DOWN 0.1 per cent at 11,298.88 (close)
Paris - CAC 40: FLAT at 4,983.24 (close)
EURO STOXX 50: UP 0.1 per cent at 3,168.29
New York - Dow Jones: UP 0.8 per cent at 24,932.76
Tokyo - Nikkei 225: UP 1.0 per cent at 22,177.02 (close)
Hong Kong - Hang Seng: UP 1.3 per cent at 26,682.56 (close)
Shanghai - Composite: UP 1.1 per cent at 2,601.74 (close)
Pound/dollar: UP at US$1.2756 from US$1.2729 at 2140 GMT
Euro/pound: DOWN at 88.45 pence from 88.71 pence
Euro/dollar: DOWN at US$1.1280 from US$1.1293
Dollar/yen: UP at 114.02 yen from 113.79
Oil - Brent Crude: DOWN 98 cents at US$59.42 per barrel
Oil - West Texas Intermediate: DOWN 77 cents at US$50.79 per barrel