Sterling was headed for its worst week since the British election as investors priced in the risk of Britain not being able to agree on a trade deal with the European Union in the 11 months left of the Brexit transition period.
Prime Minister Boris Johnson has said Britain will not obey the bloc's regulations, setting a hard stance on the upcoming negotiations.
Some analysts say this gives Britain a weaker position against its biggest export market.
Investors are nervous that Johnson is taking a hard line in the trade talks with the EU, which need to be concluded before the end of the year to avoid a potentially disruptive break in trading relations.
The pound was last flat at $1.2933, close to its lowest level in weeks.
Against the euro, which has been dragged down by a stronger dollar, sterling traded higher by 0.2% at 84.78 pence.
But the British currency was on course for its worst week since December, both against the euro and the dollar.