The pound was also more than 2% down versus the euro at one stage but it recovered some of those losses against both currencies by late morning, when it was clear Theresa May planned to form a new, minority government.
Futures pointed to a 0.1% opening gain for the S&P 500, following a quiet session in the U.S. Thursday as investors appeared to show little reaction to Mr. Comey's testimony about his interactions with President Donald Trump before his firing.
The euro was little moved against the US dollar at $1.1204.
And silver linings were found as some investors, including star fund manager Neil Woodford, predicted the election would yield a softer Brexit, improving the outlook for British stocks in the medium term.
The euro was also down 0.35 percent against the USA dollar at $1.1173.
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 victor when markets had assumed May would easily increase her majority.
By 0400 GMT sterling had shed 1.6 percent to $1.2750, having earlier carved out a two-month trough of $1.2693.More news: Iran arrests 7 more persons linked to Tehran attacks
Bourses in Frankfurt, Paris and Milan had also slipped back to leave MSCI's closely-followed 46-country "All World" index down 0.1 percent and set for its first weekly fall since mid-April. "While the pound is obviously pleased that May is set to visit the Queen at midday to seek permission to form a government - therefore likely avoiding another election in a few weeks times-- the unstable nature of such a government, and what that means for the Prime Minister's ability to negotiate with the European Union, has only seen sterling erase the top layer of its losses".
Yet he cautioned bears against chasing the pound much lower from here.
"Today's result will in part be seen as a vote against a definitive break from the European Union, and the market may soon begin to reassess the probability of a so-called "hard Brexit".
Exporters including Burberry Group Plc and Diageo Plc were among the biggest gainers, while more domestic-focused companies such as homebuilder Taylor Wimpey Plc and Lloyds Banking Group Plc slid at least 2.5 percent.
Jackson said now is the ideal time to buy British currency.
See:U.K. election - So what is a hung parliament?
Overnight, Wall Street had also seemingly judged that the testimony of former Federal Bureau of Investigation director James Comey was not life-threatening for the administration of President Donald Trump.
"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. "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. USA crude futures edged down a cent to $45.63 a barrel, with Brent crude flat at $47.86.