Sterling slumped to a 21-month low as British Prime Minister Theresa May confirmed that the government would delay a Brexit vote in the parliament, that had earlier been scheduled for Tuesday.
Earlier on Monday, the pound fell to $1.266, a level not seen since April 2017, following several media reports that May had gathered senior aides at a Monday morning meeting in 10 Downing Street to discuss pulling the vote.
It further fell to $1.2616 after PM May addressed the parliament, bringing the losses to nearly 1.7 percent against the dollar on the day. The pound also extended losses versus the euro, trading down by 0.7 percent to 90.18 pence.
May claimed that while there was broad support for her deal, the issue of the Northern Irish backstop remained a concern and she would return to European counterparts to renegotiate the deal.
"A worrying tone is emanating from the debate in the House. We already knew that delaying the vote to avoid a catastrophic loss for the government would have opened the door to an internal Conservative party leadership challenge," Stephen Gallo, European head of FX strategy at BMO Capital Markets told CNBC via email on Monday.
"Now, however, many MPs appear to be using their rhetoric to pave the way for a parliamentary no confidence vote in the PM and her government. So that door is still open. We knew this too, but the FX market appears to be reacting to the realization of it, Gallo added."