LONDON: The pound recovered on Tuesday (Oct 29) against the dollar and euro as Prime Minister Boris Johnson looked set to secure a general election before Christmas that might break the Brexit deadlock.
Traders also followed a meeting of the US Federal Reserve that was expected to end with the central bank announcing an interest-rate cut on Wednesday.
Around 1645 GMT, sterling traded at US$1.2886.
The dollar was also weighed down by weaker than forecast US consumer confidence figures, said Fiona Cincotta, senior market analyst at City Index.
The euro fell to 86.20 pence.
"Sterling rebounded from a low of US$1.2810 to session high of US$1.2897 on news that Labour would support a general election," Cincotta remarked.
"However, this could also be as close as the public will get to a vote on Brexit," she noted, adding that "under these conditions the results could in fact create more gridlock in Westminster."
Britain appeared headed for a December election after Labour, the main opposition party, said it would support Johnson's call for a pre-Christmas vote.
Labour leader Jeremy Corbyn said the decision by European Union leaders on Monday to again delay Brexit meant that "for the next three months, our condition of taking 'no-deal' off the table has now been met".
David Cheetham, chief market analyst at XTB trading group, said "the pound will likely stay fairly well supported unless a no-deal outcome becomes more than marginally possible once more".
He added: "Elections are often seen as bringing heightened uncertainty and therefore negative in the near-term for affected markets, but in this case there is a hope that it will bring an end to the present quandary we find ourselves in."
In equities trade, London's benchmark FTSE 100 index was down 0.3 per cent at the close, as the stronger pound weighed on share prices for multinationals that have substantial earnings in dollars.
In the eurozone, Frankfurt's DAX 30 closed essentially unchanged, while the Paris CAC 40 was 0.2 per cent higher.
Asian stock markets had turned in mixed results earlier in the day, while in New York, the Dow showed a slight gain of 0.1 per cent in midday trading.
Expectations for at least one US rate cut and some strong company earnings have provided some support towards the end of a rollercoaster year on global trading floors.
A Fed press conference after its meeting "is set to be highly scrutinized with the markets looking to see if another cut is in the offing for this year," analysts at the Charles Schwab brokerage said.
Oil prices turned in mixed results amid reports of another pick-up in US stockpiles that indicated weak demand growth.
In London, shares in oil giant BP shed 3.8 per cent to 492.55 pence after it reported poor third quarter results.
Key figures around 1645 GMT:
Pound/dollar: UP at US$1.2886 from US$1.2863 at 2100 GMT
Euro/pound: DOWN at 86.20 pence from 86.29 pence
Euro/dollar: UP at US$1.1108 from US$1.1100
Dollar/yen: DOWN at 108.89 yen from 108.95 yen
London - FTSE 100: DOWN 0.3 per cent at 7,306.26 points (close)
Frankfurt - DAX 30: FLAT at 12,939.62 (close)
Paris - CAC 40: UP 0.2 per cent at 5,740.14 (close)
EURO STOXX 50: DOWN 0.1 per cent at 3,622.09
Tokyo - Nikkei 225: UP 0.5 per cent at 22,974.13 (close)
Hong Kong - Hang Seng: DOWN 0.4 per cent at 26,786.76 (close)
Shanghai - Composite: DOWN 0.9 per cent at 2,954.18 (close)
Brent North Sea crude: UP 0.2 per cent at US$61.72 per barrel
West Texas Intermediate: DOWN 0.1 per cent at US$55.73 per barrel