Sterling slide against a range of currencies after a series of explosions in London caused fatalities and serious injuries across the capital.
Prime minister Tony Blair, speaking from the G8 summit in Scotland, said it was "reasonably clear" that the blasts were terrorist attacks.
The pound slid to a low of $1.7403 against the dollar from $1.752 in early London trading before the blasts took place. It was at $1.745 by mid-afternoon in New York.
The euro rose to a five-week high at 0.689p from 0.680p earlier, but settled back to 0.684p. Against the dollar, the single currency rallied to $1.198 from $1.194 early in London.
In addition to the explosions, the pound was weakened by ongoing speculation that the Bank of England will cut interest rates later this year. On Thursday, as expected, the bank left its key rate steady at 4.75 per cent.
"Today’s events have increased the likelihood that the BoE will choose to lower interest rates, given the downside risks that lower consumer confidence and tourism receipts might pose to overall activity," said Daragh Maher, senior FX strategist at Calyon.
Financial Times Service