The British pound rallied as much as 2.7 percent against the US dollar to hit its highest level since early October after British Prime Minister Theresa May surprised markets by calling for an early parliamentary election.
Sterling stayed less than a cent away from a peak of $1.2908 hit on Tuesday, the highest level since 3 October, after British Prime Minister Theresa May called a snap election for June, saying it would strengthen Britain's hand in negotiations with the EU.
Polls have for months shown far-right leader Marine Le Pen and Macron qualifying this Sunday for the May 7 run-off, but it remains a contested, four-way vote with conservative Francois Fillon and far-left candidate Jean-Luc Melenchon.
Versus the euro, the pound jumped more than 0.3%, rising from a 0.4% loss.
The FTSE 100 lost 0.1 percent to settle at 7,142.30, while France's CAC 40 soared 0.2 percent to 4,999.18 and Germany's DAX added 0.2 percent to 12,025.24.
Concerns about North Korea and the French presidential elections also pressured the dollar against the yen, which is traditionally viewed as a haven for capital in times of political and economic stress. Australia's S&P/ASX 200 was down 0.6 percent at 5,804.00.
USA treasury secretary Steven Mnuchin was quoted saying that Trump is "absolutely not" trying to talk down the strength of the USA dollar in Wednesday's edition of the Financial Times, playing down remarks by Trump in an interview last week when he said the dollar was "getting too strong".
It probably means the trend has changed and the exchange rate is likely to move higher, potentially towards an eventual target at 1.9000.
The dollar index, which measures the greenback against a basket of six other major currencies, hit a three-week low on Tuesday as 10-year treasury yields fell below 2.2% to their weakest levels since the United States election results, and remained close to that level on Wednesday. Yields on 10-year Treasury paper sank to 2.17 percent, a world away from the 2.629 peak seen in March.
Oil prices slipped as USA crude stockpiles fell by less than expected and a US government report said shale oil output in May was likely to post the biggest monthly increase in more than two years.
US crude CLc1 added 0.1 percent to $52.69 a barrel, after falling 1 percent on Monday, its biggest decline in nearly a month.
Gold rose and was not far from an intraday five-month high touched Monday, bolstered by the weaker dollar, North Korea tensions and the French presidential election.
Spot gold XAU= added 0.4 percent to $1,289.47 an ounce. USA gold futures fell 0.03 percent to $1,291.50 an ounce.
However, the Nikkei 225 remained positive, but Shanghai continued to drop by 1 percent.