The pound recovered strongly following the announcement by the Prime Minister Theresa May of a snap general election in June.
Earlier, sterling had fallen after it was announced that Downing Street would make a statement.
By about 12:30 BST, sterling was up nearly 1% at $1.267, while against the euro it was up 0.5% at 1.186 euros.
On the stock market, the benchmark FTSE 100 share index was down 116 points, or 1.6%, at 7,212.
Luke Bartholomew, of the investment firm Aberdeen Asset Management, said: “The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit.
“That would be welcomed by financial markets,” he added.
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