NEW YORK, United States (AFP) — The British pound rallied yesterday as the odds of a “hard” no-deal Brexit receded, while US stocks edged lower following dovish commentary from Federal Reserve Chair Jerome Powell.

British Prime Minister Theresa May promised to allow parliament to delay Brexit by up to three months if her own divorce proposals fail to win the support of lawmakers by March 12.

The dramatic reversal in May’s steadfast strategy came after threats of mass resignations from her own ministers and calls for a second referendum on Britain’s EU membership from the main opposition Labor Party.

But the change in course angered Brexit hardliners in May’s own Conservative Party. Influential MP Jacob Rees-Mogg warned that “any delay to Brexit is a plot to stop Brexit”.

The pound gained 1.2 per cent against the US dollar and also advanced against the euro as investors bet the country would avoid a “hard” Brexit that economists fear could crash the economy.

“Sterling was home to all the action as the UK currency soared to four-month highs,” said a note from Western Union Business Solutions analyst Joe Manimbo.

“While Britain’s road out of the EU remains winding and uncertain, the pound shot higher as fears of a no deal exit abated.”

But the strength of sterling weighed on London equities, which finished lower on a day when both Paris and Frankfurt advanced.

Earlier, Asian markets retreated amid doubts over whether Beijing and Washington can resolve their bitter trade war.

US stocks finished a choppy session slightly lower after Powell reiterated a cautious approach to further interest rate hikes.

DOVISH FED

Powell avoided any major surprises in his first of two days of congressional testimony, telling the Senate Banking Committee that inflation would fall further below the Fed’s two percent target in spite of solid growth and job gains and that the central bank would be “patient” before adjusting interest rates.

“The market heard what it wanted to hear,” said Nate Thooft, a senior portfolio manager at Manulife Asset Management. “He remains dovish and data-dependent.”

Consumer confidence rebounded strongly in February as shoppers put the Wall Street rout and extended government shutdown of recent months behind them, according a Conference Board survey.

After a nearly 20 per cent jump in US stocks since late December, some analysts think the market will find it hard to rise much further absent a positive catalyst, such as a final trade deal between the US and China.

Negotiators from Beijing and Washington have reported progress on the talks and the next round of tariffs has been delayed but there is still no final deal.