Sterling weakened against the dollar ahead of an unscheduled statement called by Theresa May to announce a snap general election.
The pound’s slump erased an earlier gain against the US currency, falling from the highest level in three weeks, Bloomberg reported.
The pound fell 0.3% to $1.2528 in London, according to Bloomberg. It later made a small recovery - rising to 0.23% down against the dollar.
Sterling had earlier touched $1.2615, the highest since March 27.
The pound also suffered a minor slump against the Euro - falling from 1.18 to 1.17.
Meanwhile, the FTSE 100 slumped to its lowest level in seven weeks.
The Telegraph said the stock exchange was “poised for [its] worst day in three months”.
The market was reacting to news on Tuesday morning that the Prime Minister would be issuing a statement from Downing Street.
May later revealed she would be holding a snap general election on June 8.
“The rumour mill says it’s going to be a snap election – that would throw up a huge cluster grenade of political risk, uncertainty and potential volatility in the markets,” Neil Wilson of ETX Capital told the Independent minutes before the announcement.
“At the extreme this could even spark a reversal in the entire Brexit process.”
The BBC’s Laura Kuenssberg reported first she had heard from one source that May would announce a snap general election on June 8.
An absence of the Prime Ministerial insignia on the podium placed outside Number 10 led others to speculate the announcement would be party political.
There were other, more extreme, suggestions floated:
The pound has reacted with volatility since Britain voted to leave the European Union on June 23 last year.