Brexit Party leader Nigel Farage is standing down candidates in seats won by the Conservatives in 2017 because he does not want anti-Brexit parties to win, in what is a significant boost for Prime minister Boris Johnson ahead of the December 12 election.
At 12h45, sterling was up 0.8% against the dollar at 1.2875 and 0.6% higher versus the euro at 1.1668.
Speaking at a campaign rally in Hartlepool, Brexit party leader Farage said the party would concentrate on seats held by Labour and other pro-Remain parties in a bid to "prevent the risk of a second Brexit referendum".
I believe we can realistically expect a Corbyn government would trigger an exodus of the country’s most successful and wealthiest individuals"
He said: "The Brexit party will not contest the 317 seats the Conservatives won at the last election. We will concentrate our total effort into all the seats that are held by the Labour party, who have completely broken their manifesto pledge in 2017 to respect the result of the referendum, and we will also take on the rest of the remainer parties. We will stand up and fight them all."
Farage said the decision was based on polling, which indicated that standing in seats in London, the South and the South West could split the vote of pro-Brexit candidates, allowing pro-Remain candidates to win.
Prime minister Boris Johnson was quick to respond on Twitter. "We welcome Nigel Farage's recognition that another gridlocked hung Parliament is the greatest threat to getting Brexit done," he said.
"If we had another hung Parliament it would lead to two more chaotic referendums next year."
YouGov, the polling company, has sent out an analysis of the Nigel Farage decision saying it is unlikely to be a "game-changing moment" for the election
Labour chair Ian Lavery said the Brexit party decision was part of a bid to satisfy US President Donald Trump and privatise parts of the NHS.
"The Tories will be heaving a sigh of relief and it also reduces at the margin the prospect of a hung parliament," Neil Mellor, FX strategist at BNY Mellon, told Reuters. "The market has shown a tendency of being supportive of a clear result," he added.
Mellor also said that the pound's positive reaction implied markets have been more cautious because they were taking into account the possibility of a Labour victory.
Nigel Green, founder and CEO of deVere Group, said: "Nigel Farage has given the Prime Minister a massive boost in the election as he stands down candidates from his Brexit Party. In turn, this will give a welcome boost to the Brexit-battered pound, which has consistently been something of a Brexit bellwether."
He added: "The move reduces the likelihood of another hung parliament, which would have led to more parliamentary paralysis and more crippling delays on Brexit.
"All of this would have generated yet more, intensified uncertainty - something financial markets loathe. This is why the pound has jumped on the news of the informal Johnson-Farage pact.
"Looking ahead, a Conservative majority would give the government the enhanced ability to move on with the Brexit process.
"Wealth, jobs and opportunity-generating businesses - both in the UK and internationally - have been crying out for certainty. There is the hope a majority government could lift the fog of Brexit that's been hampering investment and confidence.
"Should a Conservative majority be returned next month, I believe that the pound will reach $1.35."
Green also said: "The pound will also be given a boost as the agreement is a serious hammer blow for Jeremy Corbyn's Labour party.
"His anti-business rhetoric, and high tax and low-profit policies would lead to considerable and sustained selling of the pound."
Last week, the deVere CEO noted: "I believe we can realistically expect a Corbyn government would trigger an exodus of the country's most successful and wealthiest individuals who contribute significantly both directly and indirectly to the British economy."
Nigel Green concludes: "Sterling's outlook will become increasingly bullish over the next few weeks if the Conservatives continue to do well in the polls in the run-up to the election."