The blue chip FTSE 100 <.FTSE> index closed down 0.4 percent at 7,612.61 points on Thursday, with the pound on track for its best month against the dollar in almost nine years and at its highest since the June 2016 Brexit referendum.
Drinks maker Diageo (>> Diageo) dipped 0.2 percent after saying it expected foreign exchange swings to take a bigger than expected bite out of sales and profits.
Among other big dollar earners, aerospace company Rolls-Royce (>> Rolls-Royce) fell 2.3 percent and British American Tobacco fell 2.1 percent.
"A good marker is if we hold above 1.40 in cable, then that could be the line in the sand between more durable strength and something that's going to be consistently an issue for the big multinationals listed in the UK who have lots of foreign earnings," said Jasper Lawler, head of research at London Capital Group, referring to the sterling/dollar exchange rate.
With nearly a quarter of the FTSE 100 made up of energy and mining companies, some see rising commodity prices attenuating the impact of sterling's rally.
"The current strength in the commodity complex might actually drive the FTSE 100 to overcome the traditional negative correlation between UK large caps and cable (GBP/USD), in our view," said Edmund Shing, head of equity derivatives strategy at BNP Paribas.
Changes in broker ratings were the main driver behind individual moves on the FTSE, as analysts mulled over recent company updates.
Medical technology firm Smith & Nephew (>> Smith & Nephew) was the biggest gainer, up 4.1 percent after JPMorgan raised its view on the stock to "overweight" from "neutral".
JPMorgan analysts said a pull-back in the firm's shares offered a compelling entry point, highlighting forex and tax rates as two important tailwinds for Smith & Nephew.
Shares in retailer Next (>> Next) also advanced, up 3.1 percent after RBC raised its rating on the stock to "outperform" from "sector perform", citing an improved sales outlook and recent sterling strength versus the dollar.
Software firm Sage Group (>> The Sage Group plc) declined a further 2.3 percent following Wednesday's disappointing figures for revenue growth in the first quarter.
Earnings were front and centre of the action among British mid caps, which declined 0.3 percent.
Kier Group (>> Kier Group plc) jumped 15 percent following an upbeat trading statement, while UK lender Close Brothers (>> Close Brothers Group) rose 8.1 percent after saying it expected to see a rise in first-half profit.
Meanwhile Renishaw (>> Renishaw plc) dropped 15 percent after giving a half-year update.
(Reporting by Kit Rees; Editing by Alison Williams)
By Kit Rees