BREXIT jitters were hanging over the markets on Wednesday as traders awaited the result of Theresa May's attempts to get a draft Brexit deal past her Cabinet.
The pound had a volatile day, suffering from an early sell-off when inflation slightly undershot expectations to hold steady at 2.4%.
But as the markets closed, sterling was ticking higher in anticipation of a statement by the Prime Minister.
Fiona Cincotta, a senior market analyst at City Index, said: "The market is growing in confidence that Theresa May can do and has done what is necessary to draw her Cabinet behind her. Should May achieve this we expect to see a relief rally towards 1.32 dollars.
"However, there is still more work to be done when the Brexit deal faces a vote in Parliament. Only if it clears it through Parliament can we expect to see the pound push back towards 1.40 dollars."
The pound was 0.19% higher against the euro at 1.151 and climbed 0.4% to 1.303 US dollars.
Top-flight stocks also had an erratic day, recovering from an early plunge as the oil price rebounded.
A barrel of Brent crude was trading 1.8% higher at $66.5, bouncing back after its worst one-day decline since July.
This helped oil stocks, which had been dragging on the blue-chip index the day before, to scale back losses.
The FTSE 100 finished 19.97 points, or 0.28%, lower at 7,033.79.
Energy giant SSE climbed 59.5p to 1,191p after it admitted there is "some uncertainty" that its merger with rival npower will go ahead after the pair delayed the tie-up due to the incoming cap on default tariff prices.
It comes as SSE revealed widened losses for its household gas and electricity supplier and the loss of another 460,000 SSE customer accounts as competition takes its toll.
Smiths Group meanwhile rose 69p to 1,384p after it revealed plans to spin off its medical devices unit to focus on growing as an industrial technology company.
The engineering conglomerate said the separation will allow the medical unit - which makes artificial joints and hip implants - to focus on meeting its full potential, capitalise on its large programme of new product launches and to exploit growth opportunities.
In European markets, political concerns impacted trading. The French Cac was 0.64% lower and the Dax was down 0.52%.
"European equity markets are mixed approaching the close, and politics is at the forefront of traders' minds," said David Madden, chief market analyst at CMC Markets.
"The anti-establishment parties in Italy have stuck to their guns, and are keen to press ahead and raise the budget deficit, and now they await the EU's reaction. Continued pressure on Italian government bonds could spark a major debt crisis, which could easily spread across the region."
The biggest risers on the FTSE 100 were Micro Focus up 82.5p to 1,389.5p, Paddy Power up 400p to 7,070p, GVC Holdings up 43.5p to 821p, ITV up 8.2p to 158.75p.
The biggest fallers on the FTSE 100 were Rio Tinto down 136p to 3,710p, Evraz down 17.8p to 519.8p, DCC down 200p to 6,065p and Ferguson down 140p to 5,047p.
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