Sterling gave up all its early gains and dived to its lowest level since the end of October as growing concerns about British parliamentary approval for a proposed Brexit deal prompted investors to sell the currency.
A broad rally across global stocks and risky currencies had lifted the pound in early trade after U.S. President Donald Trump and China's President Xi Jinping agreed to a 90-day ceasefire in their trade dispute to try to resolve their differences.
"Until the British parliament votes on the deal next week, we are going to see a steady drumbeat of Brexit headlines, which is going to keep the pound weak," said Danske Bank currency strategist Morten Helt.
Against the dollar, the pound fell to its lowest since October at $1.2708, down nearly 0.7 percent from the day's highs. Against the euro, the pound weakened by 0.3 percent to 89.05 pence.
British Prime Minister Theresa May said she would still be in her job in two weeks' time, downplaying speculation that she might resign if she loses the Brexit deal is not approved by parliament in a vote scheduled for Dec. 11.
Stephen Gallo, European head of FX strategy at BMO Capital Markets, said the heightened chances of political uncertainty should keep the pound under pressure in the coming days.
"One thing we are absolutely certain of is how much the recent pound stability belies the tension raging beneath the surface; things are only going to get rougher from here," he said in a note to clients.
Opposition parties, the small Northern Irish party that props up May's government and many lawmakers in her own Conservative Party have said they will vote against the deal.
Such concerns have also started bubbling up in the currency derivatives market. The pound's 14-day implied volatility , a gauge of the currency's expected swings over the next two weeks, has climbed as investors have started betting on a more volatile pound. (Reuters)