Pound hits February high against dollar following snap election call
The pound swung back into positive territory after Prime Minister Theresa May announced a general election would take place on June 8.
It sent the pound up more than 0.4 per cent against the US dollar to 1.261, recovering from a 0.3% drop just an hour earlier.
Versus the euro, the pound jumped more than 0.3 per cent, rising from a 0.4per cent loss.
Sterling's strength sent the FTSE 100 lower, dropping 1.4 per cent or around 105 points to 7,221 points.
Multinational stocks on the blue chip index tend to benefit when foreign currencies are stronger.
Investors were digesting news of the snap election, as Downing Street had previously denied plans for a poll before 2020.
Neil Wilson, senior market analyst at ETX Capital, said: "For investors it adds another layer of complexity to an already uncertain picture for UK and European assets.
"Volatility is likely to remain elevated over the coming weeks. And as elections are so unpredictable, there is always the outside risk it could spark a reversal in the entire Brexit process.
"However, on the current polling, the likelihood is we will be left with a Government on a more secure footing that will ensure Brexit means Brexit."
In a further economic boost the International Monetary Fund (IMF) has raised its UK growth forecast for the second time this year, saying the economy held up in the wake of the Brexit vote.
In its latest World Economic Outlook, the IMF said it now expects the British economy to grow by 2 per cent in 2017, up from January's forecast of 1.5 per cent
That puts Britain among the fastest growing advanced economies this year, trailing closely behind the US and Spain.
"Growth...remained solid in the United Kingdom, where spending proved resilient in the aftermath of the June 2016 referendum in favour of leaving the European Union," the IMF said.
Britain's economy is then expected to slow to 1.5% in 2018 - though that figure was revised up from January's projections for 1.4% growth.
Chancellor Philip Hammond said: "The fundamentals of our economy are strong and we continue to invest in the skills needed for a stronger and fairer Britain."
However, the IMF warned that Britain's economy is still likely to suffer as a result of Brexit.
It said that that the economic projections for the UK "points to a more gradual materialisation than previously anticipated of the negative effects of the United Kingdom's decision to leave the European Union".