Political uncertainty dragged on the pound after a delay to the Queen's speech raised further speculation over the future of Theresa May's fragile Government.
Sterling was hovering at eight-week lows against the US dollar, down more than 0.7% at 1.264, having tumbled from pre-election highs of 1.295 last week.
Versus the euro, the pound dropped nearly 0.8% to seven-month lows at 1.129
Equity markets also suffered, with the FTSE 100 ending the day lower by 0.2% or 15.46 points at 7,511.87.
Markets were reflecting investor jitters around the future of the UK Government after last week's surprise election result, which left the Conservatives short of a firm majority and seeking a "confidence and supply" deal with Northern Ireland's Democratic Unionist Party (DUP).
This would ensure that the Government receives support for its budget and confidence motions.
David Madden, a market analyst at CMC Markets UK, said: "Traders despise uncertainty and that is exactly what we have got. By delaying the Queen's speech, the UK is sending out a message of instability, when it badly needs clarity.
"Dealers will be determined to avoid the pound until they are given some positive news about Theresa May's government.
"Mrs May is hoping to cut a deal with the DUP but the Northern Irish politicians are notorious for driving hard bargains so it won't be done and dusted quickly."
There was little respite across Europe, with the French Cac 40 and German Dax ending the day down 1.1% and 0.98%, respectively.
Brent crude prices rose 0.7% to around 48.45 US dollars per barrel (£38.29) as investors bet that oil prices had reached a bottom and were due for a boost after Opec's agreement to extend production cuts, announced last month.
In UK stocks, Mitie shares soared 33.2p to 280p after delivering results in line with expectations.
The struggling outsourcer swung to a pre-tax loss of £58.2 million in the year to March 31, compared with a £91.9 million profit in 2016, after the firm took a hit from accounting issues.
Ocado shares slumped 19.4p to 270.5p amid news that the online grocer is exploring plans to raise at least £200 million through senior debt to fund further growth - a move which analysts say confirmed Ocado's cash-poor position.
Motorpoint Group shares edged higher by 1.25p to 147.5p despite reporting a 30% drop in pre-tax profits to £11.7 million for the year to March 31, citing a "challenging" period surrounding the EU referendum when management was forced to cut prices.
The biggest risers on the FTSE 100 were Johnson Matthey up 61p to 3,045p, Royal Dutch Shell up 33.5p to 2,185.5p, Tesco up 2.7p to 183.45p, and GKN up 5.1p to 351.3p.
The biggest fallers on the FTSE 100 were Fresnillo down 84p to 1,641p, Micro Focus International down 95p to 2,404p, ConvaTec Group down 9p to 314.5p, and Scottish Mortgage Investment Trust down 11.2p to 406.8p.