The pound came off its lows yesterday thanks to German Chancellor Angela Merkel who struck a conciliatory tone over further Brexit talks. The British currency had dropped earlier following weak UK construction data and as Prime Minister Theresa May was poised to try and finally unlock the Brexit stalemate.

During a visit to Japan, Ms Merkel urged “creativity” and “goodwill” in upcoming Brexit talks and said “we want to do everything to avoid a no-deal because that would increase the uncertainty”.

While the chancellor ruled out re-opening negotiations, crunch topics like the unpopular Northern Ireland “backstop” provision could be discussed in the so-called political agreement that accompanies the Brexit deal, she said.

“Angela Merkel’s comments has given the pound a lift this afternoon, allowing it to recoup its losses from earlier,” Interactive Investor Rebecca O’Keeffe told AFP.

“Whilst there is no suggestion that the EU want to renegotiate the terms of the withdrawal, the fact that Chancellor Merkel is hinting at a possible compromise is good news for sterling and the UK.”

Ms May on Sunday said she would be “armed with a fresh mandate and new ideas” when she next meets European Union negotiators over her Brexit deal.

EU officials have insisted that the deal – rejected by British lawmakers – is not open for renegotiation.

But Ms May said that she would be “battling for Britain and Northern Ireland” in her efforts to get rid of the agreement’s unpopular “backstop” provision. The so-called backstop is intended to ensure there is no return to a hard border with Ireland, but Brexit supporters fear it will keep Britain tied to the EU’s customs rules.

Rabobank analyst Jane Foley said that the pound’s resilience was based on the belief that a “hard” Brexit would be avoided.

“Headlines suggesting that May will not get the deal that she wants are inferred by investors as meaning that Brexit will likely be delayed,” she said.

“It is a game with high stakes”.

London’s benchmark FTSE 100 index, featuring large multinationals earning in dollars and euros, meanwhile slipped back from earlier highs because of the recovering pound, but still outperformed its eurozone peers.

The IHS Markit/CIPS UK Construction purchasing managers’ index fell to 50.6 in January from 52.8 the previous month.

In New York, the Dow Jones was flat in the late morning, with Briefing.com analyst Patrick O’Hare saying there was little news to push stocks either way.

Meanwhile, oil prices fell after hitting their highest levels this year as the crisis in Opec producer Venezuela fuelled concerns over potential tighter crude supplies.