The pound rebounded from near three-year lows against the euro after the United Kingdom headed towards a showdown with the European Union over Brexit negotiations.

British Prime Minister Boris Johnson fired the opening salvo in his bid to renegotiate Britain's divorce terms from the EU, saying the backstop should be replaced with a pledge.

European Council President Donald Tusk said the Prime Minister's proposal contained no "realistic alternatives" and amounted to seeking a return to controls along the Irish border.

Sterling slipped against both the dollar and the euro with the pound at 91.8 pence against the latter.

However it regained some ground as fears around the Italian economy hurt the single currency.

"More Brexit noise is likely as Europe 'responds' to PM Johnson's demands," said Kit Juckes, macro strategist at Société Générale.

The falls came after signs in recent weeks that investors were becoming less pessimistic on the pound. 

ING analysts said, however, that any possible spikes in sterling "should continue to be shortlived" given that "negative headline news (is) likely to return soon" as Johnson is due to meet both French President Emmanuel Macron and German Chancellor Angela Merkel during the week. 

He is also expected to meet Taoiseach Leo Varadkar in September.