The pound staged a minor recovery on Tuesday after taking a bruising on the back of two ministerial resignations a day earlier which threw Theresa May’s premiership into doubt.
Sterling was up 0.2% against the US dollar at at 1.327 and jumped nearly 0.4% versus the euro to 1.132.
The currency’s rebound resulted in muted gains on the FTSE 100, as many of its multinational constituents tend to benefit when foreign currencies are stronger than the pound.
London’s blue chip index ended the day up just 0.05% or 4.05 points at 7,692.04.
It lagged behind its continental peers, as the French CAC 40 and German Dax ended the day up around 0.7% and 0.5%, respectively.
David Madden, a market analyst at CMC Markets UK, said: “GBP/USD bounced back after the severe sell-off yesterday on account of the political uncertainty surrounding Prime Minister May.
“Today’s upward move is likely to be driven by short covering, and it is worth noting the political situation in the UK is still fragile.”
Yesterday’s declines followed the resignation of both foreign minister Boris Johnson and Brexit secretary David Davis, who rejected Mrs May’s Brexit blueprint.
Economic announcements also impacted upon markets on Tuesday, with data showing the UK economy grew 0.3% in May, helped by a retail rebound on the back of warm weather and the royal wedding.
The market moves also followed comments from EU’s chief negotiator Michel Barnier, who reportedly said that as much as 80% of the Brexit deal had already been agreed.
Brent crude prices were up 0.5% at 78.55 US dollars per barrel, amid supply level concerns over oil and gas worker strikes in the likes of Norway.
In UK stocks, Ocado shares surged 91.5p at 1,103p after assuring that retail earnings would start to “improve significantly” over the remainder of its financial year as the benefits of the new warehouses start to bear fruit.
Retail earnings remained largely flat, edging 0.7% higher to £45.5 million over the six months to June 3, while group-wide underlying earnings fell 13.9% to £38.9 million.
WPP jumped 17.5p to 1,228p as investors shrugged off news that WPP lost out to its ousted boss Sir Martin Sorrell whose new venture S4 Capital won a high-profile battle to buy Dutch firm MediaMonks.
Premier Foods shares jumped 4.15p to 46.15p as Oasis Management upped its stake in the firm from 9.09% to 17.3%.
The move will give the activist investor more firepower when voting for the immediate removal of Premier Foods chief executive Gavin Darby at the forthcoming AGM on July 18.