Pound rises as Leadsom ends challenge to be Prime Minister
The value of the pound rose after it was announced that Andrea Leadsom had pulled out of the race to become the UK's next prime minister.
Sterling swung back into positive territory, trading up 0.42% to $1.30, after Mrs Leadsom quit her battle with Theresa May and backed the Home Secretary to replace David Cameron in 10 Downing Street.
The announcement comes after Mrs Leadsom apologised to Mrs May "for any hurt I have caused" after the row over comments which appeared to suggest being a mother gave her an advantage as a potential prime minister.
Jake Trask, currency analyst at UKForex, said sterling's rise could be quickly undermined if the Bank of England opts to slash interest rates on Thursday.
He said: "Sterling pushed higher as pro-Brexit candidate Angela Leadsom pulled out of the contest to be the next prime minister. The pound against the dollar pushed up through 1.30 on the news, but the rally is likely to be short-lived, as Mark Carney is expected to cut interest rates to a record low of 0.25% this Thursday.
"Should he decide to cut rates to zero, we will likely see another multi-year low for sterling as we head towards a probable recession in the second half of the year."
The pound fell below $1.28 for the first time since 1985 on Wednesday, and dropped as low as €1.16, when a string of investment firms put their commercial property funds on lockdown.
Mr Carney had already signalled that policymakers on the Monetary Policy Committee (MPC) would vote to slash rates over the summer, suggesting a cut in July or August.
Economists at Hargreaves Lansdown said it was "now probable" that rates will be cut on Thursday, with financial markets pricing in a reduction from 0.5% to 0.25%.
They said it was possible that rates may also be lowered to zero in August as the Bank struggles to bolster flagging growth and contain the fallout of Britain's vote to leave the EU.