Sterling was on the rise on Friday following growing speculation that Brexit will be delayed beyond the current March 29 exit date.
Currency traders pushed the British currency up 0.6% to 1.282 US dollars at the London market close, its highest level since November.
Versus the euro, sterling was also up 0.6%, trading at 1.117.
David Madden, market analyst at CMC Markets, said: “GBP/USD had a volatile session after it was reported that Brexit will be delayed beyond March 29, and shortly after, a spokesperson for the Prime Minister denied the report.
“Sterling has still managed to hang on to much of its gains. The pound has traded above the late-December highs, and if it can hold above that level, it might retest the 1.3000 area.”
Theresa May will next week put her widely panned Brexit deal to a Parliamentary vote, where it is expected to be rejected, inflicting further humiliation on her faltering administration.
The pound’s ascent came despite more worrying signs that Britain’s economic growth is slowing further.
Over the three months to November, GDP rose 0.3% compared with the previous quarter, according to the Office for National Statistics (ONS).
Growth of 0.4% was recorded in the three months to October.
The ONS said the largest downward drag came from a fall in motor vehicle production of 4.3% amid factory shutdowns, weaker consumer demand for cars and declining diesel sales.
Meanwhile, the FTSE 100 shed 24.69 points, or 0.36%, to close at 6,918.18.
Connor Campbell, analyst at SpreadEx, said: “What had been shaping up to be a decent little session unravelled as Friday went on, a negative start from the Dow Jones ensuring the European indices couldn’t get back their initial growth.
“The ongoing government shutdown in the US, as well as Starbucks-refreshed concerns surrounding the Chinese economy, contributed.”
On the lower tiers, shares in Flybe nosedived after Virgin Atlantic and Stobart Group swooped on the regional airline in a £2.2 million deal.
The companies, in conjunction with Cyrus Capital Partners, have agreed an offer of just 1p per share for Flybe, which put itself up for sale in November.
The firm’s stock tanked 77.1%, or 12.63p, to 3.75p at the close.
Shares in Debenhams were also in freefall following the removal of the retailer’s chairman and chief executive by Mike Ashley a day earlier.
The retail tycoon, who owns just under 30% of the department store chain through Sports Direct, teamed up with fellow shareholder Landmark to eject Sir Ian Cheshire and Sergio Bucher from the board.
Following the Debenhams annual meeting on Thursday, Mr Cheshire stepped down as chairman immediately, but Mr Bucher will stay on as chief executive, although not as a director.
Shares tumbled 18.9%, or 0.91p, to 3.9p.
In Europe, Germany’s DAX was down 0.3% while France’s CAC 40 dropped 0.68%.
A barrel of Brent Crude was trading at 60.8 US dollars, down 0.7%.
The biggest risers on the FTSE 100 were Taylor Wimpey up 7.15p at 156.05p, Persimmon up 92p at 2,203p, Barratt Developments up 14.2p at 503.4p and IAG up 15.2p at 610p.
The biggest fallers on the FTSE 100 were NMC Health down 148p at 2,782p, Smurfit Kappa down 102p at 2,142p, Astrazeneca down 211p at 5,712p and Melrose down 5.9p at 170.8p.