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The pound jumped Thursday after Britain and the European Union struck a crucial draft deal on post-Brexit ties.
Sterling’s advance however weighed on London’s benchmark FTSE 100 index which numbers many multinationals whose reported earnings fall on conversion when the pound is strong. 
Further reasons for the FTSE’s fall, as well as that of eurozone stock markets, were sharp oil price swings, trade war fears and Italian budget woes, dealers said.
US markets were closed for Thanksgiving, depriving European equities of afternoon guidance and sapping trading volumes.
That took the focus of action firmly into the foreign exchanges, especially sterling trades.
The pound, which had already been rising slightly ahead of the Brexit deal announcement, accelerated on the news to rise by more than one percent against the dollar on the day.
‘Christmas coming early’
But the pound later pulled back somewhat after analysts concluded that the draft agreement, although welcome, contained little to justify a sustained upward move for the currency, said Joshua Roberts at the JCRA risk management consultancy.
‘Despite the positive language, it is difficult to find much in the text that we didn’t know already,’ he said.
But in the meantime currency traders were having a busy day – and a profitable one thanks to rapid moves in the pound’s value.
‘For traders who love higher volatility, this is like Christmas coming early,’ said Naeem Aslam, chief market analyst at Think Markets. ‘The fact is that on Thanksgiving day, traders have to stick to their terminals because Brexit related news is bringing mammoth moves for the currency.’
By the end of the European session, the pound stood more than half a percent higher against both the dollar and the euro.
Despite the bounce, ‘the currency is still much weaker than it was eight days ago’ before the resignation of Britain’s Brexit minister Dominic Raab, noted OFX currency analyst Hamish Muress.
Raab last week quit in opposition to a separate draft deal struck between London and Brussels on the UK’s upcoming withdrawal from the EU on March 29.
Black Friday ‘litmus test’
British Prime Minister Theresa May on Thursday told parliament that Brexit negotiations were at a ‘critical moment’ ahead of an EU summit.
Elsewhere Thursday, Asian equities chalked up modest gains in light trading ahead of the US Thanksgiving holiday, following a rebound in energy and tech stocks on Wall Street Wednesday.
But analysts cautioned that the tepid recovery in New York should not be interpreted as an end to recent carnage seen across global stock markets. 
‘Markets have been remarkably muted, even by holiday standards,’ said Stephen Innes, head of Asia-Pacific trade at trading group Oanda.
He added that the post-Thanksgiving Black Friday shopping spree would be ‘the ultimate litmus test of US consumer confidence heading into the holiday season’.
Investor sentiment remains fragile following the volatility that has swept markets since October, while the OECD this week warned that the world economy has peaked and faces a slowdown as it confronts trade war issues and higher US interest rates.
Fewer rate hikes?
But analysts saw a silver lining, saying weaker growth could well translate into less strident interest rate hikes, especially by the US Federal Reserve, than previously forecast – a positive prospect for stock markets.
‘With the global economy apparently slowing down again, and given the risks stemming from the Italian budget and Brexit, to name but a few, central banks may decide against tightening their respective monetary policies aggressively in order to avoid another downturn,’ said Fawad Razaqzada, a market analyst at Forex.com.
Crude prices resumed their downward trajectory, after a brief recovery on Wednesday.
The commodity has fallen by almost 30 percent from four-year highs touched at the start of October.
Oil analysts attribute the pullback to high supply as well as a weakening global growth outlook.
Key figures around 1645 GMT
Pound/dollar: UP at $1.2866 from $1.2777 at 2200 GMT Wednesday
Euro/pound: DOWN at 88.60 pence from 89.09 
Euro/dollar: UP at $1.1400 from $1.1385 
Dollar/yen: DOWN at 113.00 yen from 113.04 yen
London – FTSE 100: DOWN 1.3 percent at 6,960.32 points (close)
Frankfurt – DAX 30: DOWN 0.9 percent at 11,138.49 (close)
Paris – CAC 40: DOWN 0.8 percent at 4,938.14 (close)
EURO STOXX 50: DOWN 0.9 percent at 3,126.67
Tokyo – Nikkei 225: UP 0.7 percent at 21,646.55 (close)
Hong Kong – Hang Seng: UP 0.2 percent 26,019.41 (close) 
Shanghai – Composite: DOWN 0.2 percent at 2,645.43 (close)
New York – Closed for national holiday
Oil – Brent Crude: DOWN 67 cents at $62.81 per barrel 
Oil – West Texas Intermediate: DOWN 80 cents at $53.84