Sterling hovers near six-month highs after election news
The pound lost steam but continued to hover near six-month highs as investors took an optimistic view of Prime Minister Theresa May's plans for a general election in June.
Sterling fell nearly 0.4% against the greenback to trade at 1.279, but was still hovering near its highest level since the start of October after reaching 1.29 yesterday evening.
Versus the euro, the pound was down around 0.2% at 1.194, near levels last seen in December.
The UK currency's strength was still weighing on the FTSE 100, which ended the day down 0.4% or 33.14 points at 7,114.36. It added further pain after more than £45 billion was wiped off the index on Tuesday.
Multinational stocks on the blue chip index tend to benefit when foreign currencies are stronger.
Investors were reacting to Mrs May's plans to hold a general election on June 8.
Ric Spooner, chief market analyst at CMC Markets, said: "The surprise UK election has added to market nerves and volatility as traders assess the potential for increased geopolitical risk on several fronts.
"The outcome of the UK election now adds an element of short-term uncertainty about how the Brexit negotiations will unfold, while the big rally in the British pound has increased volatility and had a knock-on impact on the UK stock market."
But if Conservatives manage to gain a stronger foothold following the election, the Government will have a mandate to push forward the Brexit agenda, which experts say could provide more certainty for investors.
Kathleen Brooks, research director for City Index Direct, said: "If the polls are to be believed about the Tory lead over Labour then this election could add certainty to the UK's Brexit positioning stance and to domestic policy for the next five years, and that is good for markets."
Ms Brooks says the pound could reach 1.30 against the US dollar in the short term, and push towards 1.35 by election time.
Across Europe, the French Cac 40 and German Dax were up around 0.3% and 0.1%, respectively.
In oil markets, Brent crude prices slumped 1.6% to around 53.91 US dollars per barrel (£42.15), after data from the US Energy Information Administration showed a smaller than expected fall in American crude inventories.
In UK stocks, Burberry shares slumped 135p at 1,566p, despite reporting "exceptional" trading in the UK in the fourth quarter. However, total revenues fell 1% with the fillip from the weak pound stripped out, as it suffered from sliding US sales and its move to de-stock its beauty range as part of a new partnership with make-up brand Coty.
Associated British Foods shares rose 35p to 2,753p after adjusted profits rose 36% to £652 million in the 24 weeks to March 4, while total revenue rose 19% to £7.3 billion, thanks in part to a boost from the Brexit-hit pound.
Tesco shares fell 0.6p to 175.6p amid news that it has agreed to sell its network of more than 200 in-store opticians to Vision Express.
The biggest risers on the FTSE 100 were J Sainsbury up 12.8p at 267.4p, easyJet up 53p to 1,117p, Royal Bank of Scotland Group up 11p at 235.7p, and Next up 134p at 4,321p.
The biggest fallers on the FTSE 100 were Burberry Group down 135p at 1,566p, Fresnillo down 47p at 1,545p, Randgold Resources down 215p at 7,155p, and Royal Dutch Shell's 'B' shares down 58p at 2,067p.