Sterling starts to recover from three-week low gaining ground against US dollar
Sterling started to recover from a near-three week low on Friday as the US dollar rally - originally sparked by the Federal Reserve's interest rate hike - started to ease.
The pound was up 0.6% against the greenback at around 1.249, having fallen from highs of 1.27 following Wednesday's US central bank decision to raise rates amid signs of a strengthening American economy.
Against the euro, sterling was up 0.2% at 1.194.
The FTSE 100 inched back over the 7000-mark, closing slightly higher by 0.18% or 12.63 points at 7,011.64.
The pound was among a number of global currencies gaining ground against the US dollar, as investor excitement over the Fed's suggestion that it could raise rates three more times over 2017 started to fade.
The greenback hit a 14-year high against a basket of currencies after it raised its benchmark interest rate by 25 basis points to between 0.5% and 0.75%, from its previous range of 0.25% to 0.5%.
Investors were also digesting data from the latest Confederation of British Industry (CBI) industrial trends survey which showed that UK manufacturing output hit a two-and-a-half year high in the three months to December
However, firms warned they may be forced to raise factory gate prices in the new year as input costs jump on the back of the weaker pound, which has fallen 17% against the dollar and 9% against the euro since the EU referendum in June.
In oil markets, Brent crude rose 1.75% to 55.11 US dollars per barrel (£44.12) on reports that Opec members have started to notify customers of a pending cut to supplies.
It comes after major oil producing nations struck a deal to curb output in November.
Across Europe, the French Cac 40 and German Dax closed higher by 0.29% and 0.33%, respectively.
In UK stocks, Rentokil rose 8.7p to 220p on news that it struck an agreement with Germany's Haniel to form a joint venture that specialises in workwear and hygiene services. It will hold 18% of the new company and receive 520 million euros as part of the deal.
Johnston Press shares jumped 1.75p to 13.25p as the newspaper publisher said it would offload 13 titles in East Anglia and the East Midlands to Iliffe Media for £17 million.
Shares in Trinity Mirror soared 8p to 92p despite warning of a 17% fall in print advertising revenue in the fourth quarter and increased provisions relating to the phone-hacking scandal.
However, the company said that digital revenues are set to rise 18% in the final three months of the year.
The biggest risers on the FTSE 100 were Old Mutual up 7p at 199.2p, easyJet up 36p at 1,043p, Hikma Pharmaceuticals up 45p at 1,792p, and Burberry Group up 35p at 1,489p.
The biggest fallers on the FTSE 100 were Micro Focus International down 78p at 2,157p, Tesco down 4.5p at 200.4p, Antofagasta down 13.5p at 670p, and Anglo American down 21.5p at 1,133p.