Sterling slipped below $ 1.23 against the dollar after a Bank of England politician said the next move for the central bank could be a cut in interest rates.
In a speech with local businesses in Northern England, Bank of England politician Michael Saunders said the UK could look at a cut in interest rates if uncertainty surrounding Brexit continues.
"If the UK avoids a Brexit without a deal, monetary policy can go both ways as well, and I think it is quite likely that the next move in bank interest rates will be down instead of upward," Saunders said Friday, according to Reuters.
The British currency slipped more than 0.4% against the dollar on the back of these comments to trade at $ 1
Last week, the Bank of England kept rates steady but warned that another delay to the UK's departure date could lead to further financial weakness.
"It is possible that political events may lead to a further period of entrenched uncertainty about the nature and transition of the United States to any future trade relationship with the European Union," the bank said in a press release.
Meanwhile, Saunders said that even if a Brexit was not offered, the levels of uncertainty surrounding Brexit would continue to act as a kind of "slow puncture" for the UK economy.
"In this case, it may be appropriate to maintain a very accommodating monetary policy stance for an extended period and perhaps to loosen the policy at some point, especially if global growth is still disappointing," he said.
CME Group's BOE tool sets the probability of an interest rate cut at the central bank meeting at the beginning of November at 8%, and most investors expect no change in borrowing costs less than a week after the UK's planned departure date.
Prime Minister Boris Johnson has promised to deliver Brexit by October 31, "come what may", even if it means leaving without a deal in place.
A "no-deal" Brexit is seen by many in and outside Parliament as a "cut-edge" scenario to be avoided at all costs.
Leaving a deal in place would mean an abrupt departure from the EU with no transitional period allowing businesses to adapt to life outside the bloc.
Central banks on relief
Central banks around the world have eased monetary policy in the wake of low inflation, slow growth and a looming economic boom.
Earlier this month, the US central bank announced it would cut interest rates to a target range of 1.75% to 2%, but gave few indications that further reductions would follow in the coming months.
The European Central Bank cut its key deposit rate by 10 basis points to -0.5%, a record low, but in line with market expectations.
– CNBC's Sam Meredith and Reuters contributed to this report.