Sterling fell in early London trading today as investors grow increasingly concerned that Britain and the European Union were no closer to agreeing a Brexit withdrawal deal.
British lawmakers have passed a law requiring Prime Minister Boris Johnson to seek a delay to Brexit if the UK cannot agree a withdrawal deal by October 19.
But a report in the Daily Telegraph said Johnson intended to challenge that law, the Benn Act, in the Supreme Court.
Jane Foley, an analyst for Rabobank, said this week and next would be another "roller coaster" for the pound as it became clearer whether Britain and the EU would reach a deal and whether Johnson would challenge the Benn Act.
At current levels, the pound is pricing in a delay to Brexit beyond the October 31 level, and a degree of hope for a last-minute agreement with Brussels, Foley said.
"Before the EU summit there will always be a modicum of hope that there will be a deal," Jane Foley said.
Boris Johnson has repeatedly vowed to take Britain out of EU on October 31 - raising the prospect that he will move further to reach an agreement than many think, or that he intends to push back against parliamentary efforts to block a no-deal Brexit.
The prime minister urged French President Emanuel Macron on Sunday to "push forward" to secure a Brexit deal and told him the EU should not be lured into the mistaken belief that the UK would stay in the EU after October 31.
Britain's latest Brexit proposal has been rebuffed in Brussels.
Sterling traded 0.2% lower at $1.2311 this morning, while it was down 0.2% against the euro at 89.195 pence.
A series of disappointing economic data over the past week has added to worries about the British economy and the impact of Brexit-related political uncertainty.