Sterling slipped on Wednesday, partially reversing some of the gains notched up earlier this week, as strong factory surveys failed to dispel the growing concerns over Brexit negotiations.
British factories ramped up their stockpiling in December as they prepared for possible border delays when Britain leaves the European Union in less than three months' time, a survey showed.
"Despite this increase in demand, confidence remains weak as everyone knows that these increased supplies of raw materials, constituent parts and finished goods will eventually run out and supply chain disruption will hurt businesses later down the line," said Jeremy Thomson-Cook, chief economist at WorldFirst.
Prime Minister Theresa May is struggling to overcome deep opposition to her Brexit plan in her own Conservative Party, raising the risk that no transition period will be provided to ease Britain out of its four-decade-long membership of the EU.
May pulled a vote on her divorce deal last month after admitting that parliament would reject it. Lawmakers are set to discuss the agreement again next month, with a vote in the week starting Jan. 14.
That is keeping currency traders on edge with implied volatility gauges, a measure of short-term currency fluctuations in sterling elevated.
At 1410 GMT, the pound fell more than a percent to $1.2610 against the dollar. It rallied more than a percent in intraday trading on Monday.
Against the euro, the British currency fell 0.1 percent to 90 pence.
In the futures markets, traders stepped up their bearish bets against the British currency, taking net short bets to a two-month high at $4.8 billion.