The British pound gyrated Tuesday as rumours and uncertainty about the Brexit endgame played havoc with investor nerves.
Sterling bobbed briefly above USD 1.31 in late morning foreign exchange deals, but then fell back against both the dollar and the euro.
"In a clear example of how headline driven the pound is at present, there's been a swift move higher and just as quick a drop back lower as the latest round of Brexit rumour and counter-rumour hit the news wires," said David Cheetham, an analyst with XTB.
He cited reports, later denied, that German Chancellor Angela Merkel was willing to grant a five-year time limit on the backstop which saw traders rush to buy the pound in anticipation of a breakthrough.
"However, the gains were fleeting and they were promptly handed back when it was confirmed the reports were untrue and we can expect more of this sort of thing in the coming days," Cheetham predicted.
Belgium said Tuesday it is to host a mini-summit of the EU members most exposed to the dangers of a no-deal Brexit on Wednesday.
Also Tuesday, the IMF issued a stern warning, saying a "no-deal" Brexit would send the British economy into severe shock.
In a whirlwind tour, the British premier met Chancellor Angela Merkel in Berlin and was to see President Emmanuel Macron in Paris in a last-gasp bid to keep her country from crashing out on Friday.
The pound is set for "another wild week" amid uncertainty about the outcome of the talks, said FXTM analyst Lukman Otunuga.
"When dealing with Brexit, one should always expect the unexpected and this will remain the mantra until more clarity is provided," he said.
European and US stock markets meanwhile dropped as traders detected cooler relations between the United States and China over trade than they had previously hoped for, with flaring trade tensions between the US and the European Union adding to worries.
President Donald Trump on Tuesday lashed out at the EU, vowing to slap tariffs on billions in EU imports in retaliation for subsidies to aviation giant Airbus.
Markets meanwhile remain on tenterhooks on the eve of the European Central Bank's interest rate decision -- and publication of the US Federal Reserve's meeting minutes.
Earnings season also kicks off in earnest this week, with expectations low but observers hoping for some positive forward guidance.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)