Sterling sank to 1.128 against the euro and 1.350 against the US dollar, as markets reacted to the landmark Brexit update from Theresa May in Florence.
The Prime Minister set out a new partnership with the EU and also proposed an “implementation” period of “around two years” as Britain withdraws from the EU, so that both sides have time to put Brexit changes in place.
Mrs May appeared to reach out to the bloc in the speech and said the UK will honour financial commitments made to the EU during membership – but did not put a figure divorce bill.
She said: “We want to be your strongest friend and partner as the EU and Britain thrive side by side.”
“We may be leaving the European Union but we are not leaving Europe.”
But the Prime Minister also stressed that Britain made a choice of democratic control when voting for Brexit.
She added: “The United Kingdom has never felt totally at home being in the European Union.”
And said: “Britain’s economy will always be strong.”
Mrs May also referenced the rights of EU citizens in the UK.
She said: “We want you to stay.”
The Prime Minister also set out proposals for a new economic partnership between Britain and the EU – and said the European Economic Area (EEA) or free trade agreement will not work going forward.
She said: “We can do so much better than this.
“It is in all our interests to find a creative solution.”
Mrs May said the quality of cooperation on security must also be maintained.
Hamish Muress, currency analyst at OFX, said: “Theresa May outlined her vision for an optimistic and upbeat relationship with the EU, but today’s speech in Florence has done little to satisfy the markets.
“The pound was sold off, as traders looked for hints around future access to the single market, and were disappointed not to find them in the prime minister’s speech.
“Not even the pledge for a two-year transition period could stem the pound’s losses, particularly against the euro.
“The prime minister is likely to double down on this rhetoric when she takes the stand at the Conservative party conference next month, and traders will be watching developments closely.
“The markets want a firm commitment to a soft Brexit and future access to the single market, but it doesn’t look like Theresa May will be pushing for this – at least for the time being.”
Kathleen Brooks, research director at City Index, said “The gyrations in the FX market during May’s Brexit speech in Florence speaks volumes about how it has been…