The pound has fallen by more than a cent against the US dollar as fears over political divisions on Brexit saw the currency lose ground following a recent surge.
Sterling was down by more than a cent to just above $1.40 after newspaper reports suggested acrimony at senior levels of the Conservative party over Europe.
The pound had climbed to more than $1.43 last week on hopes for agreement on a Brexit transition deal, as well as dollar weakness.
But now divisions over the nature of Britain’s departure from the EU have boosted speculation about a leadership challenge.
Meanwhile, the House of Lords Constitution Committee said on Monday that the Government’s Brexit legislation had “fundamental flaws” and would need to be substantially rewritten.
Investors have put aside anxieties about Tory divisions on Europe at the start of this year, helping send the currency to its highest levels since the referendum.
Now, many are betting that the rally has come to a head.
Martin Arnold, FX strategist at ETX Securities, said: “There’s been a little bit of profit-taking after the strong movements we have seen recently. Sterling positions are starting to become stretched.”
The pound collapsed from $1.50 against the US dollar after the Brexit vote and went as low as around $1.20 before steadily recovering during 2017.
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Its weakness is bad for British holidaymakers abroad and has also had a major impact on the UK economy, pushing up the price of imports, resulting in a squeeze on consumers.
But it has proved positive for manufacturers, making their products more attractively priced for overseas customers.