The pound was under pressure from fresh Brexit uncertainty following reports that Chancellor Philip Hammond could step down after locking horns with MPs over tight immigration controls.
Sterling was down against the US dollar and the euro after the Daily Telegraph reported that Mr Hammond has been attempting to put the brakes on the Government's "hard Brexit" plans.
The FTSE 100 was also languishing in the red, down 42.44 points to 6,971.24, following a lacklustre set of results from Pearson.
Shares in the education publisher were down more than 9%, or 81.5p to 751p, after underlying sales fell 7% in the first nine months of the year amid "challenging market conditions".
However, the firm said it was still on track to hit its profits target for 2016.
Despite the FTSE dipping back below the 7,000 mark, commentators trained their focus on the currency markets.
Sterling was down 0.1% against the US dollar at 1.217 US dollar and 0.2% against the euro at 1.107 euro.
Kathleen Brooks, research director at City Index, said the pound was behaving like an emerging market currency, with volatile price swings and little sign of stability.
"Although the Treasury has denied that Hammond will quit his post, it doesn't help to instil confidence in the pound," she said.
"The pound is down more than 5% so far this month versus the US dollar; it is also weaker against every other G10 currency.
"To put this month's fall into context, the pound is weaker against the majority of emerging market currencies, including the resurgent Mexican peso, and the Malaysian ringgit. The South African rand managed to eek out a gain versus the pound, even though its finance minister was recently hit with charges of criminal misconduct."
However, Ben Broadbent, deputy governor of the Bank of England, told BBC Radio 5 Live that the sterling's plunge following the Brexit vote had acted as a "very important shock absorber" and allowed the UK economy to adapt.
His comments came as think-thank EY Item Club warned that Britain should brace itself for a growth slowdown in the coming years, as falling consumer spending and business investment hampers economic growth.
It said the double whammy impact will cause UK GDP growth to drop sharply to 0.8% next year, before rebounding to 1.4% in 2018.