The pound slumped after it emerged that Boris Johnson would reject any offer of a Brexit extension made by European Commission president Jean-Claude Juncker.
Johnson is due to meet Juncker for a lunchtime meeting in Luxembourg on Monday, the first time the two leaders have met since Johnson became prime minister in July.
Meanwhile, the British Chambers of Commerce said on Monday that the UK was set for its longest slump in business investment in 17 years.
The group said that business spending was due to decline by 1.5% this year, and by 0.1% in 2020, as it blamed global political turmoil.
The pound also fell by around 0.3% against the euro (GBPEUR=X), to €1.125.
The pound “was somewhat tempering its recent optimism,” said Connor Campbell, an analyst at Spreadex.
“The Sunday papers were full of reports suggesting the EU and Boris Johnson are perhaps not reading the same book, let alone on the same page,” he said.
The pound has surged in recent weeks after rebels took control of parliament to pass a law designed to block a no-deal Brexit, and as Johnson faced mounting political problems.
Last week was the best week for the pound since the month of May. The currency climbed above $1.24 for the first time since July, buoyed in part by renewed hopes of a Brexit deal.
Though Johnson has suggested he will ignore the law and take the UK out of the bloc on 31 October regardless, House of Commons speaker John Bercow has indicated he will do everything in his power to prevent that from happening.
Johnson reportedly will tell Juncker that he wishes to secure a Brexit deal by 18 October, shortly after a key European leaders summit.
But former justice secretary David Gauke, one of the Conservative party rebels, has said that no plans to replace the Northern Ireland backstop have been put forward, making a deal unlikely.