The British pound at one stage fell more than 1.1% to six-week lows versus the euro and also dropped against the dollar today as last-ditch trade talks between Britain and the European Union resumed in Brussels and investors re-evaluated the risk of a no-deal Brexit.

The sharp drop was a complete U-turn in market sentiment from Friday when sterling had risen above $1.35 for the first time this year. 

The EU's chief Brexit negotiator, Michel Barnier, is "rather downbeat" about the chance of a deal, a senior EU diplomat said today. 

The pound started to fall in early London trading and dropped sharply soon after 8am when The Sun newspaper reported that British Prime Minister Boris Johnson was ready to pull out of talks "within hours" unless the EU changed its demands. 

Boris Johnson and European Commission President Ursula von der Leyen were due to review the situation this evening. 

"Markets are increasingly jittery to bad news having been willing to look through much of the negative headlines last week," said John Goldie, FX dealer at Argentex.

In evening trade, the pound was down 0.7% versus the dollar, at $1.334 - having at one stage fallen to a two-week low. 

Against the euro, it was down around 0.77% at 91 pence - having earlier reached its weakest point in more than six weeks. 

Traders and analysts still believe that a Brexit deal is more likely than not, but options markets indicate that they expect further price swings as the December 31 deadline approaches.