Sterling fell sharply against the dollar on Tuesday after Britain's Attorney General Geoffrey Cox published his opinion on Prime Minister Theresa May's recently amended Brexit deal.
Cox's legal advice on the tweaked deal is seen as crucial to whether the assurances May received on Monday are enough to give wavering U.K. lawmakers the confidence to give her deal the green light. A second vote on May's deal is still due on Tuesday evening.
Cox said Tuesday morning that the legal risks to Brexit still remain despite the late-night concessions from the European Union on Monday. He added that the revised document did not give Britain any legal means of exiting the "Irish backstop" arrangements unilaterally.
The backstop is a mechanism to avoid restoration of the "hard" border between the Republic of Ireland and Northern Ireland that was erased with the 1998 Good Friday peace agreement between London and Dublin. Some U.K. politicians don't like the fact that the backstop, although intended as a last-resort, would mean the U.K. remaining within a EU customs union for an indefinite amount of time and unable to leave unilaterally.
"The legal risk remains unchanged that if through no such demonstrable failure of either party, but simply because of intractable differences, that situation does arise, the United Kingdom would have ... no internationally lawful means of exiting the Protocol's arrangements, save by agreement," Cox said in the statement.
The British currency plunged 1 percent to trade at $1.3012 by 11:30 a.m. London time Tuesday. It also slipped nearly 1 percent against the euro. By around 3:00 p.m. Tuesday afternoon it had retraced some of those losses and was trading at $1.3121.
May's deal has already been roundly rejected by U.K. lawmakers once, back in January, and faces another test on Tuesday evening. If lawmakers vote against the deal again, they will then get to vote on Wednesday and Thursday respectively on whether the U.K. should leave the 28-member bloc with no deal, or should request a delay to its departure, currently scheduled for March 29.