The pound slid Monday as speculation mounted about an early election and data revealed a slump in UK manufacturing fuelled by Brexit uncertainty, traders said.
Sterling fell nearly 0.8 percent versus the dollar in late London trading.
That helped lend strong support to London's FTSE 100 shares index that features numerous multinationals earning in dollars and euros, which closed 1.0 percent higher.
"There is talk the government is considering calling a snap general election, and that is chipping away at the pound," said David Madden, market analyst at CMC Markets UK.
"It has been obvious that Prime Minister (Boris) Johnson has been on a charm offensive around in the UK in recent weeks, and he might be laying the groundwork for an election."
When lawmakers return on Tuesday the opposition parties and several members of the governing Conservatives are expected to move to try to stop Britain leaving the EU without a divorce deal on October 31.
Johnson raised the stakes Monday by threatening to purge ruling party lawmakers who are trying to block a no-deal divorce with the EU.
But if he loses a vote it could play into his hands by allowing him to dissolve parliament and call a fresh election.
The pound also took a hit from data showing the UK manufacturing sector suffered its sharpest decline in seven years in August.
The IHS Markit UK Manufacturing purchasing managers' index dived to 47.4 in August, the lowest level since July 2012, languishing below the 50 mark that indicates growth.
Market expectations had been for an August print of 48.4, after 48 in July.
"High levels of economic and political uncertainty alongside ongoing global trade tensions stifled the performance of UK manufacturers in August," said Rob Dobson, director at IHS Markit.
Earlier Monday, most Asian stock markets fell after fresh Chinese and US tariffs on goods worth hundreds of billions of dollars kicked in, though US President Donald Trump reiterated that the two sides were still due to hold talks this month.
Hong Kong was additionally weighed down by another weekend of violence, fuelling worries about possible Chinese intervention in the financial hub, while the unrest has hit property firms and Macau's casinos.
But Shanghai rose more than one percent after a better-than-expected reading on Chinese factory activity.
Washington's latest levies on imports from China meanwhile took effect on Sunday and were followed by Beijing's retaliation, including a complaint at the World Trade Organization.
The measures are the latest in the long-running trade war between the world's top two economies, which has rattled markets and hit growth across the globe.
Still, Trump said negotiators would meet this month to discuss the issue. "We are talking to China, the meeting is still on," he told reporters.
Investors were keeping an eye also on Argentina, which Sunday imposed foreign-exchange controls on exporters as it closed out a week of financial uncertainty that saw a sharp drop in the peso.
Elsewhere Monday, oil prices fell further after Friday's steep losses triggered by worries about the impact of the trade war on demand.
Dealers were concerned also about reports that the Russian output cut last month fell short of an agreement with OPEC.
Trading on Wall Street was closed for a public holiday.
- Key figures around 1530 GMT -
Pound/dollar: DOWN at $1.2062 from $1.2162 at 2100 GMT
Euro/pound: UP at 90.94 pence from 90.37 pence
Euro/dollar: DOWN at $1.0965 from $1.0992
Dollar/yen: UNCHANGED at 106.26 yen
London - FTSE 100: UP 1.0 percent at 7,281.94 points (close)
Frankfurt - DAX 30: UP 0.1 percent at 11,953.78 (close)
Paris - CAC 40: UP 0.2 percent at 5,493.04 (close)
EURO STOXX 50: UP 0.2 percent at 3,432.54
New York - Dow: CLOSED Monday for a public holiday
Tokyo - Nikkei 225: DOWN 0.4 percent at 20,620.19 (close)
Hong Kong - Hang Seng: DOWN 0.4 percent at 25,626.55 (close)
Shanghai - Composite: UP 1.3 percent at 2,924.11 (close)
West Texas Intermediate: DOWN 28 cents at $54.82 per barrel
Brent North Sea crude: DOWN 61 cents at $58.64 per barrel