The pound rebounded further Wednesday but its gains were capped as Brexit turmoil set the stage for a potential snap UK election next month.
Global stocks rose as well, with Hong Kong surging higher as city leader Carrie Lam prepared to shelve a loathed extradition bill that has sparked months of unrest.
Investors brushed off US President Donald Trump’s latest China outburst and pushed equity markets higher.
In London, the pound shot back above $1.22 to show an increase of almost one percent from late on Tuesday.
Having dived Tuesday to $1.1959 — the pound’s weakest level since 1985 except for a 2016 “flash crash” — it has since rallied on rising hopes that Britain will not exit the European Union without a deal.
“Sterling was thrown a lifeline by a parliament determined to avoid a no-deal Brexit,” said analyst Connor Campbell at trading firm Spreadex, but he also injected a note of caution.
“The complicating factor here, and the reason that sterling’s gains… are not even greater, is the potential for a general election.”
Prime Minister Boris Johnson has proposed holding an early general election on October 15 if lawmakers vote against him and force him to seek a three-month Brexit extension from Brussels.
Many economists argue that a no-deal departure could hammer the British economy, which risks already falling into recession this quarter.
British business activity shrank in August, slammed by weakness in the construction, manufacturing and services sectors, a survey showed Wednesday.
The purchasing managers’ index (PMI) for all UK sectors dropped to 49.7 from 50.3 in July, according to IHS Markit, which compiles the data. A figure below 50 indicates contraction.
“The PMI surveys are so far indicating a 0.1-percent contraction of GDP in the third quarter,” which would mean Britain had fallen into recession, noted Chris Williamson, chief business economist at IHS Markit.
Britain’s economy declined in the second quarter of the year, and one definition of recession is two successive quarters of economic contraction.
Hong Kong stocks soar
Elsewhere on Wednesday, Asian markets rose, led by a 3.9-percent surge in Hong Kong.
Shares rallied on the Hang Seng Index, with property and retail firms among the best performers, having taken a hiding over the past few weeks as demonstrations were increasingly marred by violence.
Later in the day, Hong Kong’s embattled leader confirmed that she would permanently shelve an extradition bill that lit the fuse for three months of pro-democracy protests.
“The government will formally withdraw the bill in order to fully allay public concerns,” pro-Beijing chief executive Lam said in a video statement.
Withdrawing the bill is one of the five key demands of protesters, who have taken to the streets in their millions in the biggest challenge to China’s rule of Hong Kong since its handover from the British in 1997.
Key figures around 1345 GMT
Pound/dollar: UP at $1.2182 from $1.2081 at 2100 GMT
Euro/pound: DOWN at 90.42 pence from 90.83 pence
Euro/dollar: UP at $1.1012 from $1.0974
Dollar/yen: UP at 106.27 yen from 105.94 yen
London – FTSE 100: UP 0.6 percent at 7,309.14 points
Frankfurt – DAX 30: UP 1.0 percent at 12,034.23
Paris – CAC 40: UP 1.3 percent at 5,535.43
EURO STOXX 50: UP 1.0 percent at 3,453.88
Hong Kong – Hang Seng: UP 3.9 percent at 26,523.23 (close)
Shanghai – Composite: UP 0.9 percent at 2,957.41 (close)
Tokyo – Nikkei 225: UP 0.1 at 20,649.14 (close)
New York – Dow: UP 0.8 percent at 26,325.08
Brent North Sea crude: UP $1.41 at $59.67 per barrel
West Texas Intermediate: UP $1.62 at $55.56