The British pound slid Tuesday on news that Prime Minister Boris Johnson will outlaw any extension to a Brexit transition beyond the end of next year, reviving fears of a no-deal divorce.
By late afternoon New York time, the pound was down by about 1.5 percent against the dollar.
The British currency had surged late last week after Johnson's governing right-wing Conservative Party clinched a landslide general election victory.
"Concerns about a no-deal Brexit at the end of the transition period are exerting pressure on the pound," said analyst Michael Brown at foreign exchange firm Caxton.
Those fears also produced a choppy day for British stocks, with the FTSE 100 eking out a modest gain after spending much of the day in the red.
Johnson won a big majority Thursday on a promise to take Britain out of the European Union by the end of January, followed by a transition period when London and Brussels negotiate a trade agreement.
European leaders have said that the December 2020 deadline would be too tight to complete a comprehensive deal.
Johnson plans to pass a law guaranteeing that Britain's Brexit transition period cannot run beyond the end of 2020, a source in his office said on Tuesday.
"The move to pass a bill to legislate it was unexpected by some and has raised concerns about a no-deal Brexit once more," added XTB analyst David Cheetham.
The pound won only limited support from official data showing that Britain's unemployment rate remains at a 45-year low at 3.8 percent.
Eurozone stock markets meanwhile pulled lower as euphoria faded somewhat over the China-US trade deal.
But Wall Street edged higher, narrowly lifting the S&P 500 to its fourth straight record following strong industrial production and housing data.
Most Asian bourses rose, however, following another record-breaking lead from Wall Street, after Friday's agreement between the world's top two economies ended months of wrangling and removed immediate uncertainty.
The deal, which will see Washington wind back some tariffs and China ramp up purchases of US goods as well as change some trade practices, boosted markets.
But while the news has been met with broad relief, observers point out that the deal is only the first -- and easiest -- part of a wider agreement prospects for which are highly uncertain.
Pound/dollar: DOWN at $1.3132 from $1.3332 at 2200 GMT on Monday
Euro/pound: UP at 84.87 pence from 83.59 pence
Euro/dollar: UP at $1.1147 from $1.1144
Dollar/yen: DOWN at 109.50 yen from 109.55 yen
New York - Dow: UP 0.1 percent at 28,267.16 (close)
New York - S&P 500: UP less than 0.1 percent at 3,192.52 (close)
New York - Nasdaq: UP 0.1 percent at 8,823.36 (close)
London - FTSE 100: UP 0.1 percent at 7,525.28 (close)
Frankfurt - DAX 30: DOWN 0.9 percent at 13,287.83 (close)
Paris - CAC 40: DOWN 0.4 percent at 5,968.26 (close)
EURO STOXX 50: DOWN 0.7 percent at 3,745.28 (close)
Tokyo - Nikkei 225: UP 0.5 percent at 24,066.12 (close)
Hong Kong - Hang Seng: UP 1.2 percent at 27,843.71 (close)
Shanghai - Composite: UP 1.3 percent at 3,022.42 (close)
Brent North Sea crude: UP 1.2 percent at $66.10 per barrel
West Texas Intermediate: UP 1.2 percent at $60.94 per barrel
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