The UK and the EU failed to reach a consensus over Brexit over the weekends as talks between top leaders stalled.
The pound slipped a third of a cent to trade at $1.3111 after Brexit talks between the UK and the EU faltered over the Irish border.
Sterling is also down a third of a cent against the euro, at €1.1352.
Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, says: “The clock is ticking and a deal is drawing close but having been burned by false hopes, investors are ignoring the conflicting headlines and waiting for official confirmation.”
Robert Madelin, a former senior official at the European Commission, thinks this week is a critical one for the Brexit talks.
“The 27 heads of government are going to need a near breakthrough this week, not to finish the discussions, but to say OK, let’s look at the last missing piece which is the terms of a transition,” he said.
“I personally think that what will happen between now and the European Council is everybody on both sides saying: ‘Is the little change in the text coming out a bigger problem for me, than the huge economic and personal disruptions from a no deal.'”