Sterling extended its falls in volatile trading today, a move traders attributed to a report saying that the UK attorney general had raised significant concerns about the customs backstop review mechanism.
The British currency briefly fell 0.5% to the day's low at $1.2906 before recouping some losses to stand at $1.2926. Against the euro, it weakened 0.2% at 87.20 pence.
However, by 5pm the pound had regained ground against the euro to 86.87 pence.
The Telegraph newspaper said that Geoffrey Cox, Britain's attorney general, had warned that the customs backstop review mechanism in a draft Brexit deal would be difficult to enforce from a legal perspective.
British Prime Minister Theresa May will try to convince senior ministers at a cabinet meeting this afternoon to accept a draft European Union divorce deal that opponents say threatens both her government and the UK's unity.
Meanwhile, the euro hovered below $1.13 today as Italy re-submitted its draft budget for next year to the European Commission and traders prepared for economic growth numbers due out later.
Major currencies traded in tight ranges, with the dollar edging lower from a 16-month high as investors took profits.
Italy re-submitted its draft budget for next year to the European Commission with the same growth and deficit assumptions as a draft rejected last month for breaking European Union rules, but with falling debt, the new draft showed.
That rattled investors in Italian's volatile government debt markets and kept the euro under pressure.
The single currency was flat at $1.1287 after trading above $1.13 last night. The euro had hit a 16-month low of $1.1216 earlier this week.