Britain's top 100 blue chip companies saw their market value plunge on foot of British Prime Minister Theresa May revealing plans for a snap general election.
The FTSE 100, often volatile on news that brings any uncertainty, endured its biggest one-day fall since June 27th – just after the EU referendum.
Having already been down before Mrs May's speech, it closed 180 points, or 2.5% lower, wiping £46bn off the value of its constituent companies.
Conversely, the pound enjoyed a day of strong gains following the announcement.
Sterling hit its highest level against the US dollar since the beginning of December – one pound will currently buy you $1.27.
It had fallen dramatically to around $1.2515 amid speculation over what the announcement would be.
It still remains well below pre-referendum levels. Against the euro, the pound was hovering around €1.180, rising from a 0.4% loss.
The FTSE tends to fall when the pound climbs, as stronger sterling weakens the value of multinationals' revenue from overseas.
Alexandra Russell-Oliver, Caxton FX's currency market analyst, told IRN:
"If the elections grant the Conservative Party greater support, this could put the UK in a stronger position to negotiate Brexit, which could strengthen the pound."
Kathleen Brooks, research director at City Index Direct, said the morning's events may also show that the market's view of Brexit has changed.
She said:
"If the market is taking the view that it is better the devil you know and with the odds massively in Theresa May's favour that she will win this election, we could see the pound catch a bid as we lead up to June 8th, and our 1.30 forecast for GBP/USD doesn't seem that outlandish."
Neil Wilson, senior market analyst at ETX Capital, added:
"For investors (the election) 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."
Earlier this month, UBS Wealth Management's global chief economist Paul Donovan told Newstalk that he believes the British currency will hold its own against the euro, or even appreciate, during 2017.
Speaking on Breakfast Business, Donovan said:
"On a fundamental basis, I think the weakness of sterling after the referendum result was overdone.
"In the near term, politics is not actually going to derail the economic recovery, because politicians are not nearly as important as they think they are."
Additional reporting by IRN
