The pound was heading towards 15-month highs against the US dollar following stronger than expected UK retail sales data.
Sterling was up 0.4% at 1.356 versus the greenback, but hit 1.36 earlier in the trading day after figures from the Office for National Statistics (ONS) showed that consumers continued to spend last month despite rising inflation.
Sales rose 2.4% in August compared to a year earlier, easily beating economist expectations for a 1.1% rise. On a month-on-month basis, sales jumped 1%, beating forecasts for a much smaller increase of 0.2%.
It sparked a pick-up in the pound, which last week hit its highest level against the US dollar since the EU referendum result.
"The GBP/USD was given a major boost this morning on the back of the stellar British retail sales numbers and has since handed back some of the gains," David Madden, a market analyst at CMC Markets UK, said.
"It is encouraging to see a sharp spike in consumers' willingness to spend money. Despite the pullback in the pound this afternoon, the broader upward trend (in the pound) is still intact."
Versus the euro, sterling was up 0.3% at 1.129.
The pound's strength weighed on the FTSE 100, which ended the day down 0.05% or 3.3 points at 7,271.95.
Across Europe, the French Cac 40 and German Dax closed higher by a mere 0.08% and 0.06%, respectively.
Brent crude prices jumped 1.4% to $56.18 per barrel, as investors cheered data from the Energy Information Administration (EIA) which showed a drop in gasoline stockpiles in the wake of major hurricanes in the US.
In UK stocks, shares in B&Q owner Kingfisher surged 16.6p to 313p following a 4.5% jump in group half-year sales to more than £6 billion, driven by an 18.7% leap in revenues at Screwfix.
Diageo fell 69.5p to 2,426.5p after it said half-year sales growth was expected to be knocked by the recent legislation in India, as well as the later timing of Chinese New Year.
India issued a blanket ban on outlets selling alcohol within 500 metres of national and state highways in April.
Shares in Mitie dropped 1.5p to 256.8p. The outsourcing giant confirmed on Wednesday that it was axing around 480 jobs as part of its turnaround plan and also warned over higher-than-expected costs linked to its overhaul.
The group, which has already been under pressure amid a string of recent profit warnings, said the jobs are set to go from its 53,000-strong workforce by the end of its financial year in March.
Shares in Domino's Pizza Group jumped 18p to 293.1p, taking it to the top of the FTSE 250, after announcing the launch of a £15 million share buyback programme that will run until October 19.
The biggest risers on the FTSE 100 were Babcock International Group up 46.5p to 846.5p, Kingfisher up 16.6p to 313p, ITV up 4.4p to 162.2p, and Convatec Group up 7.3p to 269.5p.
The biggest fallers on the FTSE 100 were Diageo down 69.5p to 2,426.5p, International Consolidated Airlines Group down 10p to 596.5p, Barclays down 2.4p to 185.9p, and Ashtead Group down 22p to 1,763p.