The British pound fell on Monday as the dollar rallied and traders re-assessed the chances of a breakthrough in Brexit negotiations after the encouraging headlines seen in recent days.
European Union negotiators said on Friday an agreement with Britain was 'very close' and European Commission President Jean-Claude Juncker said on Saturday a deal would be reached in November, if not this month.
That had helped push the pound up above $1.31, but investors booked profits at the start of this week, with some still cautious about whether a Brexit agreement was likely.
The pound dropped half a percent to as low as $1.3054 against the dollar, with a broader sell-off across markets and a rush into the safety of the U.S. currency also sending sterling lower.
Versus the euro, the British currency weakened 0.1 percent to 87.955, slightly below 3 1/2-month highs touched at the end of last week.
Concerns about a row between Brussels and Rome over Italy's proposed budget deficit targets have added to the euro's woes in recent sessions.