The pound fell sharply overnight, after the election resulted in a hung parliament.
At one stage it hit $1.27 against the dollar, before recovering slightly.
Traders had been expecting a clear victory for Theresa May’s Conservatives, but are now concerned about political uncertainty.
The London stock market begins trading at 08:00 GMT.
A weaker pound has supported the UK stock market over the last few months, particularly shares in companies which have a lot of business overseas.
But analysts are concerned about the heightened political uncertainty.
“The unexpected outcome increases the threat of further volatility for sterling and UK assets,” said Mark Haefele, global chief investment officer at UBS Wealth Management.
“The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations,” he said.
The BBC is projecting that the Conservatives will be the largest party with 318 seats – eight short of a majority.