The FTSE 100 <.FTSE>, edged down 0.28 percent at 7,379 points after hitting a low of 7,336 points at the beginning of the session, as the British currency briefly surged to $1.3329.
"The FTSE is back for a bullish test of 7,400", Mike van Dulken, head of research at Accendo Markets, said, pointing to a fall in the pound due to "disappointing" UK wage growth.
While UK unemployment is at its lowest since 1974, wages are being dented by inflation, meaning the Bank of England will tread carefully on Thursday with any signals about when it may finally raise interest rates.
The pound's slump in the aftermath of Britain's vote to leave the European Union in June 2016 prompted a rally in the FTSE 100's predominantly dollar-earning constituents, which got an accounting boost when converting revenues back to pounds.
Mining stocks took the most points off the FTSE 100, with Antofagasta (>> Antofagasta), Fresnillo (>> Fresnillo), Anglo American (>> Anglo American), BHP Billiton (>> BHP Billiton Plc), Rio Tinto (>> Rio Tinto) and Glencore (>> Glencore) dropping between 1.8 percent and 3.9 percent as the price of copper came under renewed pressure.
Shares in pharmaceuticals also weighed with Astrazeneca (>> AstraZeneca) down 1.6 percent, while Shire (>> Shire) declined 0.7 percent, also hit by a target price cut from JP Morgan, and Glaxosmithkline (>> GlaxoSmithKline) closed 0.4 percent lower.
Budget airline operator easyJet (>> EasyJet) was among the few stocks making headway, its shares ticking 0.7 percent higher after launching a platform which allows customers to book flights with other airlines on its website.
Dunelm's (>> Dunelm Group plc) shares led the mid caps, soaring 8.4 percent after a well-received full year update.
Analysts said the results from the home furnishings specialist were broadly in line with expectations, assuaging concerns over UK consumer spending which have plagued domestic-focused stocks since sterling's plunge after the Brexit vote.
(Reporting by Kit Rees and Julien Ponthus; Editing by Gareth Jones and Alexander Smith)
By Kit Rees
Stocks treated in this article : Diageo
, BHP Billiton Plc
, British American Tobacco
, Anglo American
, Rio Tinto
, Dunelm Group plc