The pound dived over two U.S. cents in a matter of seconds, though most stocks and bond markets were relatively unscathed awaiting further results.
An exit poll showed Prime Minister Theresa May's Conservative Party could fail to win a parliamentary majority, a shock result that would plunge domestic politics into turmoil and could delay Brexit talks.
But early results were mixed and left the outcome very much in doubt, with the BBC reporting that 76 seats appeared too close to call. For the latest updates, click.
E-mini futures for the S&P 500 were off 0.2 percent, while Japan's Nikkei added 0.2 percent. MSCI's broadest index of Asia-Pacific shares outside Japan was barely changed.
The exit poll predicted the ruling Conservatives would win 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.
"But given the patchy history of exit polls, this time we will have to wait for the seat by seat results, setting the pound up for a volatile day," he added.
By 0000 GMT sterling had shed 1.8 percent to a two-month trough of $1.2720. It was also down 1.6 percent on the euro at 87.90 pence.
The safe-haven Japanese yen edged higher on risk aversion to reach 109.88 per dollar. Highly rated sovereign bonds were also in demand with U.S. 10-year Treasury futures gaining 5 ticks.
The euro had less luck on the U.S. dollar, easing 0.25 percent to $1.1188 and testing support under $1.1190.
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 higher at $1,279.20 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 were off 14 cents at $45.50 a barrel, with Brent crude down 15 cents at $47.71.
(By Wayne Cole.Editing by Kim Coghill)
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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