The pound hovered near eight week lows on Tuesday as investors started to fret over the prospect of a second Scottish referendum and the pending trigger of Article 50.
Sterling fell more than 0.6% against the US dollar in early trading, marking the lowest level since mid-January, before paring losses to trade lower by around 0.4% at 1.216 by the afternoon.
The currency dropped 0.3% versus the euro to around 1.142.
The pound was suffering in part from delayed investor reaction to yesterday’s news, when Scotland’s First Minister outlined plans to launch a second independence referendum, and Downing Street signalled the Prime Minister would trigger Article 50 at the end of March.
Connor Campbell, a financial analyst at SpreadEx, said: “It appears that there are a few things in play here. The pound could be belatedly reacting to Nicola Sturgeon’s announcement of a second Scottish independence referendum, something that it basically ignored on Monday.
“Then there is the news that Article 50 will be triggered at the end of March – hardly an unforeseen problem, but one that carries a sting in its tail nonetheless.”
The pound exchange rate was also impacted by a stronger US dollar, which was on the rise in anticipation of an interest rate hike by the Federal Reserve on Wednesday, which would mark its third rate rise since the financial crisis.
The FTSE 100 fell into the red, ending the day down 0.1% at 7,357.85 points, weighed down in part by falling oil prices.
Brent crude prices dropped to three month lows at 50.40 US dollars per barrel (£41.45) after Opec raised its forecasts for 2017 oil output – signalling that efforts to cut production may fail to address the global glut.
Across Europe, the French Cac 40 fell 0.5% while the German Dax ended the day flat.