The pound swung higher after currency traders welcomed reports that talks between the UK and EU are to be extended past the end of this week.
Sterling had started the session lower but jolted higher after Bloomberg said talks had been extended, subsequently pulling the FTSE 100 into the red as UK multinationals were impacted by the currency movement.
The pound rose by 0.66% versus the US dollar at 1.302, and was up 0.57% against the euro at 1.107.
Connor Campbell, financial analyst at Spreadex, said: “One day before Boris Johnson’s self-imposed Brexit deadline, the UK Government blinked, signalling that negotiations will continue beyond this Thursday.
“For investors this removes an element of volatility going into what could be a very choppy period, with increased Covid-19 restrictions and the looming US election.
“Starting the session down 0.4% against the dollar and euro alike, sterling found itself briefly up 0.9% against the greenback and 0.8% against its single currency rival in the aftermath of the deadline-delaying reports.
“Of course this was the last thing the FTSE wanted to deal with.”
The FTSE 100 closed 34.65 points lower at 5,935.06 at the end of trading on Wednesday.
Europe’s other major markets were significantly more muted as traders took stock following Tuesday’s significant declines.
The German Dax increased by 0.07%, while the French Cac moved 0.12% lower.
Across the Atlantic, the Dow Jones opened marginally higher but slipped amid a lack of political progress over the anticipated US Covid-19 relief package.
Back in the UK, hospitality and leisure stocks were largely lower amid fears that more regions might face Tier 3 restrictions and result in the closure of more venues.
In company news, takeaway delivery firm Just Eat Takeaway jumped after it revealed hungry households in the UK ordered 46.4 million takeaways in the three months to the end of September.
The group said the growth helped the business accelerate away from its competitors, aided by signing up McDonald’s and Greggs to the platform.
Shares in the company closed 562p higher at 9,404p.
Online fashion retailer Asos slipped after it presented investors with a cautious outlook despite delivering higher profits.
The company said its profits quadrupled to £142.1 million for the year to August 31 thanks to cost-cutting action and lower customer returns during the pandemic.
Shares finished the day down 553p at 4,825p on Wednesday.
Belfast-based software firm Kainos saw shares surge by 318p to 1,338p after it said it expects annual results to beat market consensus following a “very strong” start to the financial year.
Elsewhere, Cineworld closed 1.25p lower at 27p after investors were shaken by Odeon-owning rival AMC’s update that it could run out of cash by the end of the year if audiences do not return to cinemas.
The price of oil moved higher on the back of reports that Russia and Saudi Arabia are keen to maintain their output cuts.
The price of a barrel of Brent crude oil increased by 1.82% to 43.19 US dollars.
The biggest risers on the FTSE 100 were Just Eat Takeaway, up 562p at 9,404p; Polymetal, up 44.5p at 1,770p; DS Smith, up 7.3p at 312p; and Fresnillo, up 30p at 1,357.5p.
The biggest fallers of the day were Standard Chartered, down 16.6p at 354.8p; AstraZeneca, down 266p at 8,190p; HSBC, down 8.6p at 296.6p; and Compass, down 27.5p at 1,187.5p.