The pound fell 1% today against the dollar, ceding gains made the previous day after the Supreme Court's ruling against Prime Minister Boris Johnson.
Investors are pricing in many more months of Brexit and general election risk.
Boris Johnson was dealt a blow by the court, which ruled yesterday that he had unlawfully suspended parliament, sending the pound half a percent higher.
While the ruling reinforced belief that Britain was unlikely to leave the European Union without a deal by October 31, other risks remain, include a split parliament and an election.
"Yesterday there was some misplaced optimism that Johnson would be removed and no-deal would be further away. But what we see today is that the status quo in terms of Brexit has not altered at all," Rabobank strategist Jane Foley said.
"But we still have Johnson in place, the opposition still doesn't want a general election and we are still cornered with respect to Brexit, it's taken a day for that to sink in," she added.
Sterling's weakness was in part also down to a firmer dollar, which has been lifted by aggressive trade war rhetoric from President Donald Trump.
Against the greenback, the pound fell to $1.2380, while it weakened 0.6% against the euro to 88.41 pence.
The pound had strengthened to $1.2504 at one stage yesterday, not far from a two and a half month high of $1.2582.
Boris Johnson now faces a hostile parliament that has returned to sitting, and his opponents are seeking new ways to block him from pursuing a no-deal Brexit that they fear would cause huge economic disruption.
He has repeated he can strike an exit deal at an October 17-18 EU summit, but EU negotiators say he has made no new proposals that can break the deadlock over how to manage the Northern Ireland border after Brexit.
The UK parliament has already passed a law requiring him to request a Brexit deadline extension to January 31, should a deal not be reached.
"No-deal risk is still on the table, it's just more pronounced for January now than for October," Foley said.
Meanwhile opposition leader Jeremy Corbyn said that once a no-deal Brexit had been averted, it would be appropriate to move a no-confidence motion and then hold a national election.
"The main risk now is that we are in a never-ending limbo," said Kit Juckes, an FX strategist at Societe Generale in London.