The British pound took a hit Monday as Prime Minister Boris Johnson appeared to revive investor fears of a no-deal Brexit, dealers said.
Sterling fell back by around 0.87 percent versus the dollar and was about 0.73 percent lower against the European single currency.
Johnson has given an October 15 deadline for a post-Brexit trade agreement with the European Union, brushing off fears about "no-deal" chaos if the talks fail.
"If we can't agree by then, then I do not see that there will be a free-trade agreement between us," Johnson said, insisting it would still be a "good outcome" for Britain.
The Financial Times meanwhile reported that Johnson is planning legislation to override parts of the withdrawal treaty that Britain and the EU agreed last year.
The report cited three people close to the plans as saying a bill to be put before parliament this week would undermine agreements relating to Northern Ireland customs and state aid.
- 'Negotiation tactics?' -
"Judging by today's price action in the pound, investors appear to believe that Johnson has indeed resurrected the spectre of a no-deal Brexit," ThinkMarkets analyst Fawad Razaqzada told AFP.
"However, I reckon it is all part of negotiation tactics -- and in the end a cliff-edge Brexit will probably be avoided as it is not in either party's interests."
Downing Street said it was seeking to "clarify" key parts of its EU divorce deal.
EU leader Ursula von der Leyen warned that Britain is legally obliged to respect the Brexit withdrawal agreement, which must form the basis of future bilateral relations.
The eighth round of negotiations resume this week, with both sides talking increasingly tough and sparking accusations of intransigence and political brinkmanship.
- European stocks rally -
The weak pound boosted the London stock market however, because it supports the share prices of multinational companies that earn profits in dollars.
Frankfurt and Paris also posted solid gains as investors hunted for bargain stocks following heady losses last week.
Investors also hope the European Central Bank will follow the US Federal Reserve in signalling low interest rates over the medium to long term.
Asian equities struggled however, with a mixed US jobs report last week offsetting a pledge from Fed boss Jerome Powell that interest rates would remain rock-bottom for years.
In New York, financial markets were closed for the long Labour Day weekend.
In commodity markets, world oil prices fell further on concerns over the long-term energy demand outlook, as economies struggle to shake off coronavirus fallout.
"The market is growing less and less confident that oil demand will recover as quickly as it hoped," said Rystad Energy analyst Paola Rodriguez-Masiu.
- Key figures around 1530 GMT -
Pound/dollar: DOWN at $1.3164 from $1.3279 on Friday
Euro/pound: UP at 89.80 pence from 89.15 pence
Euro/dollar: DOWN at $1.1821 from $1.1838 at 2100 GMT
Dollar/yen: UP at 106.27 yen from 106.24 yen
London - FTSE 100: UP 2.3 percent at 5,933.12 points (close)
Frankfurt - DAX 30: UP 2.0 percent at 13,100.28 (close)
Paris - CAC 40: UP 1.8 percent at 5,053.72 (close)
EURO STOXX 50: UP 1.8 percent at 3,320.28
Tokyo - Nikkei 225: DOWN 0.5 percent at 23,089.95 (close)
Hong Kong - Hang Seng: DOWN 0.4 percent at 24,589.65 (close)
Shanghai - Composite: DOWN 1.9 percent at 3,292.59 (close)
New York - Closed
Brent North Sea crude: DOWN 1.1 percent at $42.18 per barrel
West Texas Intermediate: DOWN 1.4 percent at $39.20