Uncertainty over Theresa May’s future as prime minister helped send sterling down nearly 1% against the dollar on Thursday.
The pound fell 0.9% against the greenback at $1.3127 and declined 0.45% against the euro to €1.1217.
The fall reflected concern about the Conservative Party leadership following Mrs May’s speech on Wednesday.
Investors are also questioning whether the Bank of England will raise interest rates this year.
Stephen Gallo, of BMO Financial Group, said: “What is happening with sterling is a mix of a general dollar strength and renewed jitters about the future of the leadership of the Conservative party.”
As sterling fell, the FTSE 100 rose to close 40.4 points higher at 7,507.9.
Theme park operator Merlin Entertainments led the blue chip index with its shares finishing 3.4% higher at 463.8p amid reports it is considering a deal with SeaWorld.
Merlin, which runs Legoland parks and owns attractions Madame Tussauds – is understood to be interested in buying parts of SeaWorld, although the US theme park operator would prefer a takeover deal.
Shares in SeaWorld fell 5.7% in afternoon trading in New York.
The FTSE 250 closed up 59.09 points at 20,088.5,