Sterling fell versus the euro on Monday and flattened against the dollar amid more post-Brexit tensions and persistent economic growth worries in the UK.
British prime minister Boris Johnson said on Monday the British parliament could pass legislation this year to scrap some of the rules on post-Brexit trade with Northern Ireland that his government agreed in 2020 with the European Union.
That would set up further clashes with the European Union and potentially harm sterling, analysts said.
The legislation, which would unilaterally replace parts of the Northern Ireland Protocol is due to be sent back to the UK parliament's lower house for a second reading. That is one of the stages of the law's passage through the legislature.
Risk-sensitive sterling had risen in London morning trade to a two-week high of $1.2330 versus the dollar, lifted by an equity market rally. But by 2.40pm it had trimmed that rise, edging up 0.1 per cent on the day to $1.2290.
Against the euro, sterling fell 0.15 per cent to 86.07 pence.
"Although some hawkish remarks from Bank of England officials have lent support to the pound recently, UK growth concerns remain a thorn in the side of sterling investors," said Jane Foley, head of forex strategy at Rabobank in London.
"If the UK slips closer to a trade war with the EU over the Northern Ireland protocol, these fears would be accentuated."
Bank of England chief economist Huw Pill said on Friday that interest rates would remain the central bank's main monetary policy tool as it prepares to start selling bonds, reversing part of its economic stimulus push.
The central bank began raising borrowing costs in December last year, increasing Bank Rate to 1.25 per cent from a record low of 0.1 per cent in an attempt to tackle inflation, which rose to a 40-year high of 9.1 per cent in May.
Recession fears and political scandals have also contributed to weakening sterling, down almost 10 per cent against the dollar since the beginning of the year.
Mr Johnson's Conservatives lost two parliamentary seats on Friday, a new blow to the prime minister, whose authority has been battered by revelations of breaking lockdown rules at his Downing Street office during the Covid-19 pandemic. -Reuters
