The pound began the week on a disappointing note, recording its biggest decline in more than a week amid worries over Brexit negotiations and rumours Scotland could hold a second independence referendum.
Sterling fell as low as $1.2384 and €1.1728, its lowest level since 15 February and 17 February, before recovering slightly. By mid-afternoon, the UK currency was down 0.34% and 0.67% against the dollar and the euro respectively, exchanging hands at $1.2424 and €1.1713.
The decline came after news emerged that Prime Minister Theresa May was set to announce that EU citizens who move to Britain after Article 50 is triggered will no longer be entitled to the automatic right to stay in the UK permanently.
EU citizens will instead be subject to new migration curbs that will be put in place. This could possibly include a new visa scheme and restricted access to benefits.
Meanwhile, according to The Times, the PM could agree on a second independence referendum for Scotland, but only on condition the vote is held after Britain leaves the EU.
"Whether or not another Scottish referendum will actually happen remains to be seen. But the concerns will be there, which along with uncertainty about the timing and process of UK's exit from the EU should keep the pound under pressure for the time being," said Fawad Razaqzada, market analyst at Forex.com.
"Consequently, any potential gains in the short term should continue to be taken with a pinch of salt – even if they come on the back of positive UK economic data."
Elsewhere, the dollar struggled for direction, falling 0.32% against the euro, buying 0.9438 euro cents, and 0.08% against the Swiss franc trading at CHF1.0067.
However, the greenback gained 0.10% and 0.14% against and the Canadian dollar and the yen respectively, trading at CAD$1.3104 and ¥112.28.
Kathleen Brooks, research director at City Index, attributed the dollar's erratic performance to a lack of faith in the economic policies of US President Donald Trump.
"The dollar and the US bond market seem to have lost faith in Trumpenomics, 10-year US Treasury yields fell to their lowest level since November on Friday and the dollar index is 2% away from its December high," she said.
"If Trump can put flesh on the bones of his pro-growth economic plans, then US bond yields could rise and drag the dollar with them, if he fails to do this then we could see further dollar weakness."