The pound has pushed higher against the US dollar and the euro on news that trade negotiations with the European Union (EU) are continuing.

By midday in London, sterling was up 1.5% against the dollar at $1.3428, while against the euro it rose 1.2% to €1.1050.

The pound hit a one-month low last week on worries of a no-deal Brexit.

Although the deadline was missed on Sunday, the EU and the UK agreed to continue negotiations.

UK Prime Minister Boris Johnson and the European Commission President Ursula von der Leyen will carry on talks "to see whether an agreement can even at this late stage be reached".

On the stock market, the FTSE 100 share index was up 33.06 points, or 0.5%, at 6,579.81. However, the FTSE 250 index, which contains more domestically-focused stocks, saw a bigger rise, climbing 1.8% to 19,982.58.

Some analysts have warned that the rally in the pound might be short-lived, because Britain and the EU have repeatedly failed to reach a deal, and there is still a risk that one won’t happen.

Jane Foley, head of FX strategy at Rabobank, said: "The pound is obviously relieved that the trade talks will continue between the EU and the UK.

"However, no tangible process has been confirmed over the weekend and the market is therefore likely to remain on tenterhooks in the week ahead. Without confirmation that progress has been made, the pound's gains are likely to be capped."

The basics

Brexit happened but rules didn't change at once: The UK left the European Union on 31 January 2020, but leaders needed time to negotiate a deal for life afterwards - they got 11 months.
Talks are happening: The UK and the EU have until 31 December 2020 to agree a trade deal as well as other things, such as fishing rights.
If there is no deal: Border checks and taxes will be introduced for goods travelling between the UK and the EU. But deal or no deal, we will still see changes.

A joint UK-EU statement said. “Despite the exhaustion after almost a year of negotiations, despite the fact that deadlines have been missed over and over we think it is responsible at this point to go the extra mile."

Britain formally left the EU in January, but has since been in a transition period during which it remains in the EU single market and customs union.

The transition period ends on 31 December, and without a deal the trade relationship could be affected by tariffs and quotas.