The pound slumped to an 11-month low on Monday as the prospect of a "no deal" Brexit preoccupied currency traders following comments by Trade Secretary Liam Fox.
Sterling shed around 0.5% to trade at 1.294 versus the US dollar, while the British currency slumped 0.4% to 1.119 against the euro.
Connor Campbell, financial analyst at SpreadEx, said: "The day's real loser was the pound.
"Plunging half a percent against the dollar - cable is at a fresh 11-month low - and 0.3% against the euro, sterling was spooked by the apparent increase in likelihood of a 'no-deal' Brexit, with International Trade Secretary Liam Fox echoing Mark Carney's claims last week that the chances of the UK leaving the EU without an agreement in place is becoming more and more of a reality."
Dr Fox believes that a no-deal Brexit is now more likely than an agreed withdrawal, with the Trade Secretary putting the odds at "60-40".
Sterling is likely to plummet further if fears of a "no deal" materialise, according to Capital Economics.
The FTSE 100 eked out a small rise, ending the day up 4.68 points, or 0.06%, at 7,663.78.
In stocks, HSBC shares dipped 7.2p to 708.6p despite the bank boosting profits as it pushes ahead with the strategy put in place by new chief executive John Flint.
The lender reported pre-tax profit of 10.7 billion US dollars (£8.2 billion) for the half-year ended June 30, up from 10.2 billion US dollars (£7.9 billion) for the same period in 2017.
But adjusted pre-tax profits fell from 12.4 billion US dollars (£9.6 billion) to 12.1 billion US dollars (£9.3 billion), which HSBC said was due to hiring more staff and expanding its digital network.
Tesco shares nudged up after the supermarket giant said its strategic partnership with France's Carrefour will become operational in October.
Tesco said the relationship will cover global suppliers, and will allow for the joint purchasing of own-brand goods and store equipment such as trolleys, fixtures and cleaning supplies. Shares ended down 0.1% at 259.4p.
On the FTSE 250, Spire Healthcare shed over 21% to end down 53.8p at 193.4p after the private hospitals operator warned over its full-year performance in the face of falling NHS spending.
IWG, meanwhile, plunged 23% or 61.5p to close at 238.5p after the Regus owner said it will not continue talks with a number of private equity firms which were looking to buy the company.
Continental indices ended in the red, with the Cac 40 in France down by 0.14% and the Dax in Germany falling by the same amount.
Brent crude was trading up 1% at 74 US dollars a barrel.
The biggest risers on the FTSE 100 were Hargreaves Lansdown up 41p at 2,118p, BT Group up 4.1p at 238.5p, GlaxoSmithKline up 25.2p at 1,578.4p and Smurfit Kappa up 48p at 3,262p.
The biggest fallers on the FTSE 100 were Fresnillo down 33.9p at 980.6p, MicroFocus down 38.5p at 1,190.5p, RBS down 5.8p at 252p and Rangold down 116p at 5,494p.