The pound firmed against the dollar and euro on Wednesday as the European Union prepared to grant a further delay to Brexit, averting the prospect of Britain departing the bloc next week without a deal.

File photo: VCG

The prospect of another delay had initially hit sterling, which briefly dropped as low as $1.2841 on Wednesday in Asian trade before bouncing back to $1.2875 around 1030 GMT, up slightly from late in New York on Tuesday.

The pound is experiencing volatility on every Brexit twist and turn. Earlier this week the unit reached five-month highs above $1.30 on increasing hopes that a painful 'no-deal' Brexit divorce would be averted.

"The prospect of a 'no-deal' outcome appears to be miniscule, which explains why the pound has maintained most... gains," David Madden, analyst at CMC Markets UK, said Wednesday.

In stock market trading, London's benchmark FTSE 100 index was meanwhile up 0.5 percent, while eurozone equities were mixed.

The EU is set to grant another Brexit extension after British MPs on Tuesday rejected Prime Minister Boris Johnson's bid to force his divorce deal through parliament this week.

European Council President Donald Tusk has recommended that the EU's 27 other member states grant an extension, likely until the end of January.

In the meantime, the UK could hold a general election aimed at ending the Brexit deadlock, according to analysts. 

In commodities trading, oil prices slid after data indicated US stockpiles increased again last week, reinforcing worries about weak crude demand growth as the world economy slows.

On the corporate front, shares in French carmaker PSA jumped 2.5 percent to 24.65 euros after the company said healthy demand for upmarket models helped it resist a slowdown in the global automotive market.

The maker of Peugeot, Citroen, DS, Opel and Vauxhall vehicles announced a one-percent gain in third-quarter sales to 15.6 billion euros ($17.4 billion).