The pound is higher in early Asian trading, regaining some of the ground lost from a sharp drop late on Tuesday.
The currency was trading at $1.2259, up 0.8% from its fall the previous day.
On Tuesday, it had fallen more than 2%, dropping below $1.21, while against the euro it fell below €1.10.
The pound has now fallen about 18% against the dollar since the referendum, to levels not seen since 1985.
“Unfortunately this volatility in the pound is unlikely to end until there is greater clarity around Brexit,” said market analyst Angus Nicholson of IG in Melbourne.
He added that the rise in Asian trading may be driven by Prime Minister Theresa May making a late amendment to the terms of a debate on Wednesday, seen by traders as effectively giving Parliament a vote on the terms of Brexit.
Neil Wilson from ETX Capital said the mood around the pound had been extremely negative in recent days and that it was “now trading like an emerging market currency.”
He also said comments by a senior Bank of England official had not helped.
Michael Saunders, a member of the Bank’s interest rate-setting committee, said earlier that the pound could still “fall further”, but that the recent sharp drop was not an immediate cause for concern.
Bank threat
The comments were interpreted as a signal that the Bank could keep interest rates lower for longer.
Some traders also said sterling came under pressure from reports that US banks Citi and Morgan Stanley could move staff out of London, adding to worries about foreign investment leaving the UK.
“It really isn’t terribly complicated. If we are outside the EU and we don’t have what would be a stable and long-term commitment to access the single market then a lot of the things we do today in London, we’d have to do inside the EU 27,” said Rob Rooney, chief executive of Morgan Stanley International.
Traders also pointed to leaked documents, warning that a withdrawal from the EU single market could cost the Treasury more than £66bn a year, as a reason for the drop.
Analysis: Kamal Ahmed, BBC economics editor
Why does the fall of the pound matter?
On the upside, it matters for exporters which are boosted as their goods are far cheaper on foreign markets.
It matters for multinational companies like pharmaceutical firms which earn much of their income in dollars. It matters for the tourism industry in the UK, as foreign visitors flock here for bargains and good value holidays.
On the downside, it matters for tourists travelling abroad who will find everything they buy much more expensive.
It matters for the food and fuel this country imports as it becomes more expensive. It matters for inflation, as the rise in import costs feeds through to businesses and the High Street.
And remember, it does not need much of a rise in inflation to wipe out real income growth which at present is running at around 2%. If real incomes start falling, that is when the fall in sterling becomes a truly political issue.
Because the pound in your pocket will actually be worth less.
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Credit: BBC
