The economic recovery will be long and hard -at least in the US. Investors sold the North American currency as well as stocks around the world after the US Labour Department said private payrolls, excluding government agencies, rose by 71,000 in July, after a gain of 31,000 in June, but below economists forecasts of a 90,000 increase.
The pound rose 0.3% against the dollar, reversing two days of losses, to trade at $1.594.
The FT-SE 100 Index paired earlier gains, dropping 23 points, or 0.4%, to 5,342.
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Investors snapped US Treasury bonds on expectations that the Federal Reserve will have to re-start a quantitative easing programme, or buying bonds in the market to spur economic growth.
"The market is getting excited about the prospect of a Fed ease in its Aug. 10 meeting," said Jane Foley, research director at Forex.com.
The US central bank is unlikely to cut interest rates, already at 0.25%, so buying bonds in the market would be the most likely alternative.
"But there is a strong risk that that won't happen, as the US economy is still expanding and creating jobs," Foley said. "Then it will all reverse."
