MPs are preparing to vote on several alternative Brexit proposals.
Sterling was trading higher on Monday after MPs appeared to lean towards a Norway-style Brexit that would be one of the least painful extractions from the bloc.
The pound was up over 0.6% versus the US dollar at 1.312 at the London market close and rose 0.8% against the euro at 1.17.
It comes as MPs prepare to vote on several alternative Brexit proposals after Theresa May’s derided deal was comprehensively rejected for the third time last week.
Fiona Cincotta, at City Index, said: “As Parliament attempts to seize control of Brexit for a second time, there are signs that support is building for a softer version of Brexit. The Common Market 2.0 option would keep the UK in the EU’s single market and customs union with the bloc.
“Should we see a shift in support towards this softer version, we could expect to see the pound extend gains further.”
Labour and the SNP have said they will back the motion, giving it a healthy chance of success. While all Brexit scenarios will result in economic pain, the Common Market 2.0 proposal is one of the least damaging to the British economy.
However, the parliamentary votes are not binding on the Government so any currency bounce could be short lived.
Meanwhile, the FTSE 100 closed up 38.19 points, or 0.52%, at 7,317.38.
In stocks, EasyJet closed the day at the foot of the index after the budget carrier warned that uncertainty over Brexit is holding back demand and said it would make a loss in the first half due to rising costs.
The company expects a pre-tax loss for the six months to March 31 of £275 million. Revenue will rise by about 7.3% to £2.34 billion after capacity increased by 14.5%.
EasyJet said the results were in line with expectations, but that its outlook for the second half was now more cautious owing to macroeconomic uncertainty and unanswered questions around Brexit.
Shares closed down 108.5p, or 9.7%, at 1,009p.
On the lower rungs, shares in Findel were in the ascendancy after the online retailer received the backing of investor Schroders in its rejection of a takeover offer tabled by Mike Ashley’s Sports Direct.
Findel said that its second largest shareholder wrote in a letter that it “remains supportive of Findel and its management team”.
Last week, Findel urged its shareholders to reject a proposed takeover from Sports Direct as it reaffirmed its stance the offer “undervalues” the business.
The company’s board remained unanimous in its rejection of the 161p per share cash offer, valuing the firm at £139.2 million, and “strongly” urged shareholders to reject it.
Shares in Findel closed up 1.98p at 159.98p.
In Europe, Germany’s DAX was up 1.35% and France’s CAC 40 rose 1.13%.
A barrel of Brent crude was changing hands for 68.7 US dollars, an increase of 1.6%.
The biggest risers on the FTSE 100 were Melrose Industries up 6.55p at 189.7p, Standard Chartered up 20.3p at 611.6p, Ashtead up 61p at 1,913.5p and Evraz up 19.6p at 640p.
The biggest fallers on the FTSE 100 were EasyJet down 108.5p at 1,009p, Tui down 22.4p at 713.2p, SSE down 32p at 1,155p and British American Tobacco down 59p at 3,135p.