Sterling fell on Monday as fears grew that the Irish border issue and disagreements within Britain's ruling Conservatives over Brexit could see Prime Minister Theresa May face a serious leadership challenge.
The pound lost ground against the dollar and the euro, at one point falling close to 1 percent to the greenback, though it later clawed back some of the losses.
Sunday newspapers quoting unnamed lawmakers as saying May should prepare for a challenge to her leadership.
By 15:30 GMT, sterling was down 0.65 percent, having earlier hit a low of $1.2957, its weakest since Oct. 4.
Against the euro, the pound was down 0.3 percent, well off earlier lows of 88.57 pence which had been a 2 1/2-week low.
Jittery markets closely watched May’s speech to parliament, at which she is expected to say that 95 percent of the Brexit divorce deal has been settled. But she will maintain opposition to the European Union’s proposal for the land border with Northern Ireland.
However, her proposal to extend a status-quo transition period beyond the current proposed date of December 2021 has angered the eurosceptics in her party.