The pound took a tumble against the dollar on Thursday after the Bank of England warned of slowing growth, while its US counterpart hiked rates amid signs of a strengthening US economy.
Sterling fell 1.2% against the US dollar to 1.24, but was relatively flat against the euro at 1.19.
A weaker pound supported the FTSE 100, which closed higher by 0.7% or 49.82 points to 6,999.01. Foreign companies on the UK's blue chip index stand to benefit from earnings in stronger foreign currencies.
The pound slipped further against the US dollar after the Bank of England kept interest rates steady at 0.25% but warned that growth looked set to slow in the new year as firms put investment decisions on hold.
It came after the US Federal Reserve hiked rates on Wednesday for the first time since December 2015 and signalled three more rises in 2017 as America's economy continues to strengthen.
Investors were also digesting news that UK November retail sales slowed to 5.9% year-on-year from October's 14-year high of 7.2%, as fuel prices increased at the fastest rate since 2011.
The strength of the greenback was taking its toll on Brent crude which was flat at 53.72 US dollars (£43.32) per barrel. A stronger US currency tends to make the dollar-denominated resource more expensive for international investors.
The dollar's rise also knocked gold prices to February lows of 1,125.49 US dollars (£907) per ounce. It knocked mining stocks including Randgold Resources down 470p at 5,470p, Fresnillo down 66p at 1,114p, Antofagasta down 37.5p at 683.5p, and Anglo American down 48p at 1,154.5p.
Across Europe, the French Cac 40 and German Dax both closed higher by just over 1%.
Sky shares rose 4.5p to 988p after Rupert Murdoch's 21st Century Fox tabled a formal £11.7 billion takeover bid for the British broadcaster, in hopes of gaining control of the 61% of the business it does not already own.
Shares in Punch Taverns jumped 14p to 191p on news that the pub operator has agreed to carve up its estate as part of a takeover by Heineken and private equity firm Patron Capital.
The deal, which values Punch at £402.7 million, will see the Dutch beer giant snap up 1,895 pubs and Patron 1,329.
Shares in Centrica rose 12.3p to 231.2p after the British Gas owner upped its full-year earnings outlook and revealed it has stemmed the flow of energy customers quitting the business.
Just Eat rose 2p to 599.5p as it gobbled up Hungry House and Canadian firm SkipTheDishes as part of an acquisition spree, that will see it fork out over £260 million.
JD Sports shares rose 8.3p to 321p after announcing it would open an investigation into working conditions at its warehouse in Rochdale following a Channel 4 report claiming the facility is "worse than a prison".
Shares in Southern Railway operator Go-Ahead were up 60p at 2,190p despite warning that it would take a hit from crippling strike action as it faces surging costs.
The biggest risers on the FTSE 100 were Centrica up 12.3p at 231.2p, Royal Bank of Scotland Group up 9.6p at 227p, International Consolidated Airlines Group up 16.8p at 450.7 and GKN up 11.5p at 330.9p.
The biggest fallers on the FTSE 100 were Randgold Resources down 470p at 5,470p, Fresnillo down 66p at 1,114p, Antofagasta down 37.5p at 683.5p, and Anglo American down 48p at 1,154.5p.