The pound slipped on Tuesday following a suicide bombing attack at an Ariana Grande concert at Manchester Arena, the most deadly attack in the UK in a decade.
Police raised the death toll to 22 and said children were among those killed.A total of 59 people were left injured in the blast.
Sterling slipped by about 0.2 per cent against the dollar to $1.2978 following the attack. It was also down 0.2 per cent against the euro at €1.1537.
:: Follow live updates on the suspected terror attack in Manchester
“The FTSE started the day effectively flat at 7500, with most of the early action centred on the pound,” Connor Campbell, financial analyst at Spreadex, said.
“Investors are assumedly shaken by the events in Manchester yesterday evening, combined with the continued effects of the Tories’ election wobble,” he added.
The attack is the worst in the UK since 56 people were killed in the 7 July London bombings in 2005. The police said it was carried out by one man who died at the scene after detonating an explosive device.
The impact on other areas of the market was limited.
"We could see a bout of nervousness regarding the terror threat, but it's likely to be minor," Shane Oliver, head of investment strategy at AMP Capital in Sydney, told Reuters.
"Ever since 9/11, the impact on markets from terrorist events has been declining," he added.
Investors are displaying caution ahead of the 8 June general election and as Brexit negotiations get under way.
Strategist at UniCredit wrote in a note on Monday that they still deem it too early to “turn sterling-bullish”.
They said that the recent move above $1.30 “largely reflects a weak dollar rather than renewed confidence in the [pound]”.
