The pound dived to its lowest against the euro for more than a month as the possibility of a no-deal exit from the EU intensified.
Trading sentiment plummeted after Downing Street claimed the European Union had made a Brexit deal “impossible”, fuelling a war of words with the EU.
Sterling slid against the euro and the US dollar after a sell-off was triggered by a statement from Downing Street, highlighting that the Prime Minister had a difficult conversation on Brexit with German chancellor Angela Merkel.
The pound fell by 0.67% against the euro to 1.112 and slid by 0.52% to 1.222 against the dollar during trading on Tuesday.
Neil Wilson, chief market analyst at Markets.com, said: “Sterling is under the cosh again as hopes of a deal between the UK and EU fade.
“The last flicker of hope was snuffed out this morning after a call between the PM and Chancellor Merkel of Germany left the process at an impasse.
“The pound does not like the tone of all this.”
Disappointing productivity data from the Office of National Statistics added to traders’ woes on Tuesday morning.
New figures revealed at Britain’s productivity fell at the fastest annual pace in five years as Brexit uncertainty compounds an already weak spot in the UK economy.
Nevertheless, the pound remains marginally stronger than at the start of August, when it sunk its lowest in more than a year as trading sentiment rapidly deteriorated.
The London markets are all also down for the day as the stock markets remain on tenterhooks for a trade deal between the US and China.
The FTSE 100 was 25 points down at 7,172.2 points after morning trading on Tuesday.