The pound took a hit on Monday amid fears surrounding Theresa May's future as Prime Minister following weekend reports that she is facing a rebellion from Conservative backbenchers.
Sterling fell as much as 0.8% against the US dollar at one point, but was trading nearer 1.310, down more than 0.6% in late afternoon trading.
Its performance against the euro was also impacted, dropping 0.6% to trade at 1.123.
Investors were reacting to a Sunday Times report that a group of around 40 MPs had signed a letter of no confidence in the Prime Minister.
Mrs May's fragile grip on power, relying on DUP votes for a Commons majority, means the Government is vulnerable to any Tory rebellion.
David Madden, a market analyst at CMC Markets UK, said the rising political uncertainty was "the talk of the City".
"Prime Minister May is still secure in her position, and the Tory rebels would need to round-up more signatures before they could actually push for this. Nonetheless, the very fact that members of her own party are looking to oust her, severely weakens her position."
However, Mr Madden noted that "in a roundabout way" Mrs May's political troubles were helping FTSE 100, which ended the day down around only 0.24% or 17.81 points at 7,415.18 points.
"The remainder of Europe is firmly in the red, but the weakness in sterling has cushioned the fall in the British index.
"Continental Europe is being hit by the sell-off that began last Thursday. The shock sell-off in Japan in the latter-half of last week is still being felt around the world," Mr Madden added.
Across Europe, the French Cac 40 was down 0.73% while the German Dax fell 0.4%.
Brent crude prices were down 0.6% at $63.24, edging away from its highest level since June 2015, as traders remained uncertain about the future of global supply levels, which have yet to recover from a multi-year glut.
In UK stocks, Ladbrokes fell 3.3p to 133.6p despite posting a 3% rise in net revenue for the four months to October 29, aided by a 12% rise in its digital business which offset a drop in takings at the betting giant's retail stores.
Revenues at the retail stores fell by 1% as like-for-like revenue from betting machines came in flat.
Taylor Wimpey shares were nearly flat, down just 0.1p at 192.8p, having reported a slight drop in its order book at 8,751 homes and £2.2 billion for the second half of its 2017 financial year, down from 8,981 and £2.3 billion over the same period last year.
But the housebuilder struck a positive note, saying UK housing market was "positive" during the period and that central London was "stable".
Ultra Electronics plunged 297p to 1,230p after the defence firm warned over profits as its chief executive stepped down.
Ultra said weaker financial results came following the Ministry of Defence "pausing, cancelling or delaying numerous programmes", which had hit company orders.
The biggest risers on the FTSE 100 were Carnival up 83p to 4,947p, Astrazeneca up 60p to 4,930p, Diageo up 21p to 2,580.5p, and Royal Dutch Shell's 'B' shares up 20p to 2,477.5p.
The biggest fallers on the FTSE 100 were Babcock International Group down 59.5p to 753p, Coca-Cola HBC down 115p to 2, 470p, NMC Health down 118p to 2,800p, and BAE Systems down 19p to 537p.
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