Sterling dropped to 1.109 against the euro, having been as high as 1.117 earlier.
It follows an announcement from the EU’s chief Brexit negotiator, Michel Barnier, that the UK and EU had reached a “deadlock” in the Brexit negotiations.
Sterling also dropped against the US dollar, from 1.32 to 1.31.
Barnier told reporters in Brussels on Thursday that on the issue of the financial settlement, there have “been no negotiations”.
“On this question we have reached a state of deadlock which is very disturbing for thousands of project promoters in Europe and it’s disturbing also for taxpayers,” he added.
Barnier told a news conference that negotiators “worked in a constructive spirit” and clarified points, but were unable to make “any great steps forward”.
He added: “There is a new momentum and I remain convinced today that with political will, decisive progress is within our grasp in the next two months.”
The amount of money the UK will pay to meet financial commitments it made while still a member has been one of the main stumbling blocks in the negotiations.
Barnier said Britain had told the EU that it was not ready to specify how much it believed it should pay.
“Regarding that question we are at an impasse, which is very worrying for thousands of projects everywhere in Europe and also worrying for those who contribute,” Reuters reports.
Barnier said he was still convinced that decisive progress was possible in the next two months given political will.
Brexit Secretary David Davis said he made “not secret of the fact that to provide certainty, we must talk about the future”.
This is just the latest drop in the value of the pound since the UK voted to leave the European Union.
Before the referendum the pound was at 1.30 against the euro.
The lowest that Sterling has dropped since the June 23 referendum was in August this year when it slumped to 1.08.
Sterling later recovered its earlier losses against the euro and was trading at 1.121 at around 6pm.
Despite Barnier’s comments, Theresa May insisted that the UK was making good progress in its divorce talks with the EU.
“There has actually been good progress made in these talks, and Michel Barnier himself has recognised that over the coming weeks we will be able to make constructive progress as well,” the Prime Minister said.
″(We) also want to ensure that we get onto that business of talking about the future relationship, the future partnership we’re going to have with the EU.... We look forward to moving on to being able to talk about that.”