The pound struck four-month lows against the dollar Wednesday after British MPs slammed Prime Minister Theresa May's latest attempt to pass her Brexit plan.
In London trade, sterling sank below $1.2660 in the afternoon, a level last seen in January, while the European single currency hit a three-month high against the British currency.
"Politicians from all sides trashed her proposals, leaving the pound mired at four-month lows while the prime minister awaits her end of days," said OANDA senior market analyst Jeffrey Halley.
"A settlement remains as distant as ever," he warned.
May has already failed three times to pass her controversial withdrawal agreement in parliament, and has vowed to set out departure plans shortly after the next vote on her deal.
European stock markets gyrated. They reversed an earlier firm trend to push downwards in the afternoon, but then recovered somewhat to close mixed as dealers kept a close eye on the China-US trade war.
On Wall Street the Dow index was down around 60 points in the late New York morning, having clawed back some of its opening losses.
Analysts warned that stocks markets were on edge and any unsavoury headlines could precipitate a deeper sell-off.
Sterling had rallied Tuesday after prime minister May unveiled her revised EU divorce deal that included a promise for lawmakers to set a confirmatory referendum on whatever version of Brexit they end up approving.
However, the currency fell as quickly as it had risen as opponents of the original agreement attacked it as nothing more than a rehash.
May called the new proposals this parliament's "last chance" to end a political deadlock but with key MPs led by arch-Brexiters still unmoved, it is likely to fall flat for a fourth time.
- 'Like a lead balloon' -
"May's latest attempt to conjure up a viable compromise EU withdrawal bill went down like a lead balloon in her own party -- and didn't get visible support from anyone else, merely adding to uncertainty," noted Societe Generale analyst Kit Juckes.
Failure to get the deal through parliament will more than likely see May resign and possibly be replaced by a more hardline leader -- most bets are on the controversial Boris Johnson -- who may well push for a no-deal exit, a scenario that could spell economic hardship.
Dealers are tracking developments in the China-US trade tussle after the pair swapped tariff hikes and Donald Trump barred Chinese telecoms giant Huawei from the US market and put it on a sales blacklist.
A 90-day reprieve provided a semblance of hope that the row can be resolved and the two economic superpowers will hammer out a trade deal at some point.
But reports emerged that Trump is now considering banning Chinese surveillance camera makers from getting access to US components, in a similar move to that against Huawei, which could further stoke tensions.
Oil prices fell after data pointed to a surprise increase in US inventories, while Washington appeared to tone down its rhetoric from recent weeks with Iran, saying it did not want a war with the Islamic republic.
- Key figures around 1540 GMT -
Pound/dollar: DOWN at $1.2659 from $1.2706 at 2100 GMT
Euro/pound: UP at 88.10 pence from 87.84 pence
Euro/dollar: DOWN at $1.1155 from $1.1161
Dollar/yen: DOWN at 110.30 yen from 110.50 yen
London - FTSE 100: UP 0.1 percent at 7,378.98 points (close)
Frankfurt - DAX 30: UP 0.2 percent at 12,168.74 (close)
Paris - CAC 40: DOWN 0.1 percent at 5,378.98 (close)
EURO STOXX 50: FLAT at 3,386.72
New York - Dow: DOWN 0.2 percent at 25,819.57
Tokyo - Nikkei 225: UP 0.1 percent at 21,283.37 (close)
Hong Kong - Hang Seng: UP 0.2 percent at 27,705.94 (close)
Shanghai - Composite: DOWN 0.5 percent at 2,891.70 (close)
Oil - Brent Crude: DOWN $1.06 at $71.12 per barrel
Oil - West Texas Intermediate: DOWN $1.34 at $61.79