The pound enjoyed its best week against the dollar since October 2009 as a combination of an expected softening in the government's hard-line stance on Brexit and a weakening dollar lifted the UK currency.
It climbed 2.7pc against the dollar this week, smashing the $1.25 barrier for the first time in a month.
A London High Court ruled that the government cannot trigger Article 50 without parliamentary approval raising hopes of a 'soft Brexit' and prompting speculation of an early general election, sending the pound charging higher. It was also lifted by the hawkish tone from the Bank of England.
At the same time, the dollar came under pressure as political risk surged after the race to the White House narrowed dramatically over the past week.
Yesterday, the pound touched $1.2549, and traders in the City think it may continue to edge upwards in the closing days of US presidential campaign.
Anthony Cheung, of Amplify Trading, said: "With inflation set to rise in the near-term, and the uncertainty surrounding the US election, further upside cannot be ruled out short-term."
"However, whether this can continue is more questionable, as the legal complexity associated with parliamentary approvals means that what has been light relief could quickly turn into a political mess," he continued.
The rising pound and persistent jitters about the US presidential election prompted the FTSE 100's longest losing streak this year. It fell for five straight sessions, bringing its weekly losses to 4.33pc, its worst since January, when the index plunged into bear market territory.
Global stocks retreated to their lowest levels since early July. Frankfurt's DAX tumbled 0.7pc, the CAC in Paris fell 0.8pc and the Spanish IBEX dropped 1pc.
With inflation set to rise in the near-term, and the uncertainty surrounding the US election, further upside cannot be ruled out short-term.
US stocks bucked the trend as investors digested the latest non-farm payroll report. Data from the Labor Department showed total non-farm payroll employment increased by 161,000 in October, below expectations of 175,000.
Some traders think the US election trading has "a Brexit echo". Neil Wilson, of ETX Capital, said: "There is a definite sense we're heading for a Brexit-like event - if Trump wins there could be a sharp sell-off in risky assets like stocks and the US dollar."
Meanwhile, the VIX volatility index, which is considered the best gauge of fear in the market, climbed for ninth consecutive day to its highest level since the immediate aftermath of the referendum and its longest run of daily gains on record.
The VIX volatility index - Wall Street's 'fear index' - is up 9 days in a row, on for its longest run of consecutive daily rises on record. pic.twitter.com/toIoHId4ee— Jamie McGeever (@ReutersJamie) November 4, 2016
As we edge closer to the election, Mr Cheung added: "The only certainty in this market is volatility, and that politics will continue to override economics for the time being."
Oil prices also weighed on financial markets. Brent crude tumbled by as much as 3.5pc to $47.98a-barrel as tensions resurfaced between Saudi Arabia and Iran that could derail Opec's planned output cut.