The pound soared towards a three-year high amid a retreat in the dollar and trader hopes surrounding the UK’s rapid vaccine rollout.
Global markets were cautious throughout the trading session, with traders turning towards robust currencies once again.
Sterling was also in focus in apprehension of Bank of England chief Andrew Bailey’s Mansion House dinner speech.
The pound increased by 0.2% versus the US dollar to 1.384 and was up 0.12% against the euro at 1.141.
Connor Campbell, financial analyst at Spreadex, said: “It remained an exceedingly quiet session, with the Western markets in various states of retreat as the day went on.
“Sterling finds itself in the sweet spot between stimulus-led dollar bearishness, and an underlying swell of positivity surrounding the robust and, in stark contrast to most aspects of the pandemic’s handling, successful vaccine rollout in the UK.
“The pound’s strength – it also added against the euro, continuing to hover around nine-month highs – once again forced the FTSE back towards 6,500.”
The London markets dropped as multinationals were impacted by the strong pound.
The FTSE 100 closed 7.2 points, or 0.11%, lower at 6,524.36 at the close of play on Wednesday.
In the US, the Dow Jones dipped from its recent record highs as the stimulus package continued to grind through the bill-passing procedure.
Europe’s largest markets were also marginally lower as they were impacted by wider cautious sentiment.
The German Dax was 0.57% lower and the French Cac moved 0.36% lower.
Housebuilders were broadly in the red on Wednesday after the Housing Secretary announced a £3.5 billion package aimed at ending the cladding scandal which will partly be funded by taxes on developers.
He said the Government is imposing a new levy on developers of certain high buildings in England and a £2 billion UK-wide tax on the residential development sector, sending Taylor Wimpey, Berkeley and Barratt lower.
Persimmon also saw it share price slump, with it jumping the gun on its rivals to declare plans to hand over £75 million to resolve legacy cladding issues.
Shares in the housing giant were 79p lower at 2,704p at the close of play.
Elsewhere in company news, Ocado was the FTSE 100’s biggest loser on Wednesday as downbeat reports from analysts, including HSBC, weighed further on investor pessimism.
Shares slid by 189p to 2,511p, adding to the decline in value it saw on Tuesday, when it revealed a pre-tax loss of £44 million for the year to November.
Dunelm shares jumped after the homeware retailer reported a pre-tax profit which soared more than a third to £112.4 million in the six months to December. It closed up 78p at 1,339p.
The price of oil was jolted higher by the EIA report which showed that US oil inventories fell by 6.6 million barrels, catching traders off-guard after they predicted an increase.
The price of Brent crude oil increased by 0.62% to 61.47 dollars per barrel.
The biggest risers on the FTSE 100 were Anglo American, up 123p at 2,713p, Glencore, up 7.1p at 270.5p, Rio Tinto, up 152p at 5,922p, and DS Smith, up 7.6p at 370.5p.
The biggest fallers on the FTSE 100 were Ocado, down 189p at 2,511p, Compass Group, down 71p at 1,398p, Berkeley, down 199p at 4,193p, and Taylor Wimpey, down 6.95p at 158.95p.