Following Boris Johnson’s decision to join the Brexit campaign, sterling fell by 1.8 per cent – or two cents – against the US dollar to hit 1.41.
It also fell 0.7 per cent against the euro to 1.28 and hit a two-year low against the yen.
In all, sterling fell against all the world’s major currencies in its worst day of trading since the Bank of England cut interest rates to 0.5 per cent in 2009.
The steep fall adds to losses made by the pound over recent months.
So far this year fears of a British exit from the EU have already pushed the pound down by more than four per cent against the US dollar.
Analysts said that was likely to continue to direct sentiment until the in-out vote on June 23.
Sam Hill, senior UK economist at RBC Capital Markets, said: “Today’s weakness appears to reflect an increased probability of Brexit after political reaction to the new deal on EU membership was more split than the PM would have hoped.”
Currency markets were digesting the EU reform package secured by Prime Minister David Cameron ahead of the referendum.
Michael Hewson, chief market analyst at CMC Markets UK pointed out that the money markets were already concerned about problems in China and the EU referendum just added a new element of uncertainty.