The pound has come under pressure after a new poll pointed to the risk of a hung parliament in next week’s General Election.
Sterling slipped below $1.28 in early trading against the US dollar following YouGov research published in The Times.
The figures came in stark contrast to earlier expectations that the Conservatives would increase their majority.
They showed Theresa May’s party might lose 20 of the 330 seats it holds, with Jeremy Corbyn’s Labour gaining nearly 30 seats.
That could leave the Tories 16 seats short of the overall majority of 326 needed to govern without the support of other parties.
Mrs May’s decision to call an early election had provided a boost to the pound – with the currency shooting up from less than $1.26 to above $1.29 in one day and later creeping above the $1.30 mark.
That is because markets initially pencilled in an increased Conservative majority – strengthening the Prime Minister’s hand politically as she prepares for Brexit negotiations.
But the Prime Minister’s apparently commanding poll lead over Labour has since narrowed, reducing expectations of a landslide victory.
The pound had a wobble when it slipped below $1.28 last week and has since struggled to recover lost ground.
That fall came as the poll lead narrowed in the wake of a climbdown over controversial plans to make some elderly people pay a greater share over their care costs.
The latest poll data weighed further on the currency, sending it nearly a cent down in overnight trading in Asia before it pulled back some of the losses.
Mitul Kotecha, head of Asia macro strategy for Barclays, said: “The narrowing in the polls has clearly dented sterling’s performance and continues to weigh on the currency, and is probably likely to do so in the near term.”
YouGov acknowledged that its predictions were controversial and suggested big swings in the usual voting patterns for many Britons.
But chief executive Stephan Shakespeare told The Times that the model had been tested in the run-up to the Brexit vote when it consistently put the Leave campaign in the lead.
The research, based on 50,000 interviews, allowed for big variations in the outcome of the election, ranging from a Tory total number of seats as high as 345 to as low as 274.