THE pound surged to a two-and-a-half month high, while the FTSE 100 slumped to a nine-week low after prime minister Theresa May announced a general election would take place on June 8.
The news sent sterling up more than 0.6 per cent against the US dollar to trade at 1.264, recovering from a 0.3 per cent drop just hours earlier, and marking its highest level since the start of February.
Versus the euro, the pound jumped 0.5 per cent to 1.186, rising from a 0.4 per cent loss.
Sterling's strength sent the FTSE 100 lower, dropping 1.6 per cent or around 116 points to 7,210 points, its lowest level in over nine weeks.
Multinational stocks on the blue chip index tend to benefit when foreign currencies are stronger.
However, the FTSE 250, which hosts a wider range of domestically focused stocks, also fell 1 per cent or about 195 points to 19,329 points.
Investors were digesting surprise 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."
But experts have pointed to polls which suggest the Conservatives will gain a stronger footing which will push forward the Brexit agenda.
Mrs May, who has a fragile working majority of just 17 in the Commons, said in her statement on Tuesday that she wanted "unity" at Westminster as talks on Brexit begin in earnest with the European Union.
Dean Turner, an economist at UBS Wealth Management, said: "We believe it is highly likely the Conservatives will increase their majority and firm up the future direction of Government policy, particularly in regard to Brexit.
"The prime minister has been softening her rhetoric on Brexit in recent weeks and we expect her to use this election to secure a mandate for future direction of the talks.
"Although disruption to the UK economy in the short-term is still likely, we believe that the longer-term outlook is brighter."
