The pound shed as much as three U.S. cents at one point in hectic trade, or close to 2 percent, before steadying as the results waxed and waned.
Futures for the FTSE eased 0.3 percent, while yields on 10-year gilts dipped 3 basis points to 1.00 percent.
The damage was limited elsewhere, with E-mini futures for the S&P 500 flat.
Japan's Nikkei added 0.8 percent and MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.3 percent.
The rot started when an exit poll showed Prime Minister Theresa May's Conservative Party could fail to win a clear majority, a shock result that would plunge domestic politics into turmoil and delay Brexit talks.
Early results showed a large swing to Labour but left the outcome in doubt, with the BBC forecasting the Conservatives could hold 322 seats. For the latest updates, click.
The exit poll had predicted the ruling Conservatives would claim 314 seats in the 650-member parliament and the opposition Labour Party 266, leaving no clear winner when markets had assumed May would easily increase her majority.
Betting agencies were already taking wagers on whether May would lose her job.
"It's clear that the election is a humiliation for the Tories, who blew a massive poll lead in just a few weeks," said Sean Callow, senior currency analyst at Westpac.
He predicted a hung parliament would strip the pound of all the gains made since the election was called and leave it wallowing around $1.2500.
"We could be heading for a period of market uncertainty, which will be compounded by the elephant in the room this time around -- the forthcoming Brexit negotiations," said Michael Judge, head of corporate dealing at broker OFX.
"Investment decisions are likely to be put on hold for the short to medium term -- certainly until we have clarity on who governs the UK. At that moment, that is anybody's guess."
By 0150 GMT sterling had shed 1.2 percent to $1.2785, having earlier carved out a two-month trough of $1.2693. It was also down 1.2 percent on the euro at 87.59 pence.
The euro had less luck against the U.S. dollar, easing 0.2 percent to $1.1193.
The single currency had slipped overnight when the European Central Bank cut forecasts for inflation and said it had not discussed scaling back its massive bond-buying campaign, sending bond yields to multi-month lows.
NO SMOKING GUN
Overnight, Wall Street had seemingly judged the testimony of former FBI director James Comey was not life-threatening to the administration of President Donald Trump.
Comey accused Trump of firing him to try to undermine the investigation into possible collusion by his campaign team with Russia's alleged efforts to influence the 2016 election.
"I think the market is taking less of an alarmist review of this situation because there is no smoking gun here," said Jefferies & Co money market economist Thomas Simons.
"So it's not particularly impactful for thinking about... Trump's economic agenda to go through."
The Dow rose 0.04 percent, while the S&P 500 gained 0.03 percent and the Nasdaq Composite 0.39 percent.
In commodity markets, spot gold was a whisker lower at $1,274.30 an ounce.
Oil prices remained subdued with Brent having settled at its lowest since Nov. 29, the eve of an OPEC production cut deal.
U.S. crude futures edged up 2 cents to $45.66 a barrel, with Brent crude up 4 cents at $47.90.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Follow NDTV for latest election news and live coverage of assembly elections 2019 in Maharashtra and Haryana.
Subscribe to our YouTube channel, like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.