STERLING took a tumble on Tuesday, hitting five-week lows as investors turned attention to pending central bank decisions from the US and Japan.
The pound fell as much as 0.6 per cent against the US dollar to 1.296, its lowest level since mid-August.
The UK currency also dropped against the euro, dropping 0.4 per cent to 1.160.
Meanwhile, the FTSE 100 finished higher by 0.3 per cent or 17.2 points at 6830 points, eking out gains in the wake of a retail announcement from Burberry, and smaller-than-expected declines in Tesco sales.
Sterling's dive has been chalked up to jitters around interest rate decisions set to be delivered by the US Federal Reserve and Bank of Japan on Wednesday.
"The pound seems to be a victim of some skittishness ahead of the major central bank meetings this week in Japan and the US," Neil Wilson, a markets analyst at ETX Capital, said.
"Markets anticipate the Fed will keep rates on hold but a hike is not being ruled out, which may be rattling traders," he added.
Across Europe, the German Dax rose 0.2 per cent and the French Cac finished lower by 0.1 per cent.
In oil markets, Brent crude prices had a volatile session as fresh data showed Iraqi oil exports rose to 3.2 million barrels per day in August.
Speculation is rife over a potential deal following an informal oil producer meeting in Algeria next week, which could help support prices that have suffered under a global supply glut.
Brent prices managed to stage a bounce in late afternoon trade, rising 0.5 per cent to 46.13 US dollars per barrel, before dropping by 0.2 per cent to 45.81 US dollars per barrel.
In UK stocks, Burberry was the best performer on the FTSE 100 after the company announced that for the first time, shoppers would be able to immediately purchase clothes featured in their September collection via their Regent Street shop and online store, eliminating traditionally long wait times.
Burberry shares closed higher by 48p at 1379p.
Tesco shares rose 1.5p to 177.9p after data from market research group Kantar Worldpanel showed the supermarket delivering its best 12-week sales results in two years. Sales dropped 0.2 per cent, but it marked the smallest dip since early 2014.
Kingfisher shares dropped by 7.9p at 368.8p despite reporting a 10.6 per cent rise in half-year pre-tax profits to £427 million.
The B&Q owner said there has been no clear evidence of a Brexit-induced slowdown in demand.
GlaxoSmithKline shares closed relatively flat after the drugs giant named its consumer healthcare boss Emma Walmsley as its new chief executive, replacing Sir Andrew Witty when he retires next March.
Glaxo's shares closed lower by 0.5p at 1645p.
Away from the top tier index, Sports Direct shares rose after the company said it plans to undertake an independent review of working practices and corporate governance, following concerns raised by shareholders.
Sports Direct's FTSE 250-listed shares jumped 1.4 per cent or 4p to 286p.
The biggest risers on the FTSE 100 were Burberry, up 48p to 1379p, Shire, up 132p to 5315p, Johnson Matthey, up 62p at 3272p, and Worldpay Group, up 5.5p at 303.5p.
The biggest losers on the FTSE 100 were International Consolidated Airlines Group (IAG), down 14.8p at 401p, Next, down 143p at 4897p, Easyjet, down 29p at 1041p, and Kingfisher, down 7.9p at 368.8p.
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