The pound has hit its highest level against the US dollar since early February on news that Theresa May will seek to hold an early election on 8 June.
Earlier this morning, sterling had fallen dramatically to around $1.2515 amid speculation about what the Prime Minister was going to announce.
But it climbed after Mrs May revealed her plans to seek a General Election - passing $1.27 by mid-afternoon, its highest level since the beginning of December.
It still remains well below pre-referendum levels.
Against the euro, the pound was hovering around €1.180, rising from a 0.4% loss.
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Alexandra Russell-Oliver, Caxton FX's currency market analyst, said: "If the elections grant the Conservative Party greater support, this could put the UK in a stronger position to negotiate Brexit, which could strengthen the pound."
Kathleen Brooks, research director at City Index Direct, said the morning's events may also show that the market's view of Brexit has changed.
She (Munich: SOQ.MU - news) said: "If the market is taking the view that it is better the devil you know and with the odds massively in Theresa May's favour that she will win this election, we could see the pound catch a bid as we lead up to 8 June, and our 1.30 forecast for GBP/USD doesn't seem that outlandish."
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The FTSE 100, often volatile on news that brings any uncertainty, was heading for its biggest one-day fall since 27 June.
Having already been down before Mrs May's speech, it dropped afterwards by 140 points (1.9%), wiping £35.6bn off the value of the FTSE's constituent companies.
The FTSE tends to fall when the pound climbs, as stronger sterling weakens the value of multinationals' revenue from overseas.
Neil Wilson, senior market analyst at ETX Capital, said: "For investors (the election) adds another layer of complexity to an already uncertain picture for UK and European assets.
"Volatility is likely to remain elevated over the coming weeks. And as elections are so unpredictable, there is always the outside risk it could spark a reversal in the entire Brexit process.
"However, on the current polling, the likelihood is we will be left with a Government on a more secure footing that will ensure Brexit means Brexit."