A ratcheting up of pressure on prime minister Theresa May to resign has sparked further falls for the pound, while mounting trade tensions between the US and China sent the FTSE 100 into the red with only a handful of stocks escaping losses.
The pound fell nearly half a cent to $1.262 against the dollar while the euro was changing hands at 88.3p. Sterling is now on course for a record 14 days of losses against the euro.
May is under intense pressure to resign as her attempts to put a fourth version of Brexit deal to parliament triggered a revolt among members of her cabinet, with House of Commons leader Andrea Leadsom resigning yesterday.
'Theresa May's departure is now inevitable,' said Neil Wilson, chief market analyst at Markets.com. 'For sterling it will depend entirely on what, or rather who, is next. In the interim we should expect volatility to remain elevated as the politics of Brexit stay opaque.'
Karen Ward, chief market strategist at JPMorgan Asset Management, argued the pound's heavy falls sparked by the mounting pressure on May had been overdone.
'Talk of prime minister Theresa May being placed by a more hardline prime minister has sent the pound reeling in recent days,' she said.
'The market appears to associate this with either a higher risk of no deal or a change of government. It’s not obvious however that either are right. '
Ward argued that any new leader would still face the same tension between appeasing Eurosceptics Conservative backbenchers pushing for a no-deal Brexit and a parliament that will not accept that outcome, with a fresh general election unlikely to change that configuration.
'While this is hardly good news for the UK economy or markets, the additional risk premium built in recent days looks unjustified,' she said.
The FTSE 100 fell 79 points, or 1.1%, to 7,254, in a broad-based sell-off. 'The markets are not a pretty sight on Thursday with stocks flashing red across the UK, Europe and parts of Asia,' said Russ Mould, investment director at AJ Bell.
'Investors are spooked by how relations between the US and China seem to be deteriorating, spurred by the US putting Huawei Technologies on a trade blacklist.'
Tour operator TUI (TUIT) was the heaviest faller, down 5% at 741.4p as a survey from Barclays showed more Britons were likely to opt for 'staycations' this year.
On the continent, losses were steeper, with the FTSE 100 lent some support by the falling pound's boost to international earners. The French CAC 40 and the German DAX 30 dropped 1.6%.