Sterling sank close to a one-month low against the dollar low on Tuesday as investors fretted over heightened Brexit tensions before crunch trade talks between London and Brussels.
In midday deals, the pound dropped more than 1.0% versus the greenback to $1.3022 - a level last seen on August 12. It also lost ground against the euro.
US oil prices meanwhile plunged five percent as the coronavirus pandemic weighed on the outlook for demand.
And European equities slid before the reopening of Wall Street after a long Labour Day holiday weekend.
The British pound had already dived Monday after Prime Minister Boris Johnson revived the prospect of a no-deal Brexit, saying if an EU trade deal is not struck by October 15 then there will not be one.
Sterling lurched lower again Tuesday after it was officially confirmed that the head of the UK government's legal department has resigned over Johnson's last-minute changes to Britain's Withdrawal Agreement.
The eighth round of negotiations resume this week, with both sides talking increasingly tough and sparking accusations of intransigence and political brinkmanship.
"It looks like the wheels of the Brexit bus are finally falling off, as news of the head of UK government legal (department) resigns," said analyst Sebastien Clements at international payments company OFX.
"The UK ministers now face an uphill battle with plenty of roadblocks continuing to slow things down."
Later this afternoon, UK and EU negotiators resume Brexit talks, after warnings that Johnson's changes to domestic legislation had risked derailing the process, while also threatening peace in Northern Ireland and even a showcase UK-US trade deal.
The latest resignation appears to have raised the stakes.
"Whilst we should caution that this indicates disharmony, it is also possibly an overreaction by the market to a negative headline, and does not necessarily make a deal with the EU less likely than it was before," said Markets.com analyst Neil Wilson.
"Nonetheless, it highlights the brinkmanship pursued by Johnson's government in the talks - even suggesting that Britain could unilaterally rewrite the Withdrawal Agreement has raised the EU's hackles and clearly raises the stakes as the two sides commence the eighth round of official talks today."
Elsewhere, Asian stock markets ticked higher after last week's steep drops as investors brushed off US President Donald Trump's latest anti-China salvo.
Despite continued uncertainty about the timetable for economic recovery - and with no Covid-19 vaccine yet available - investors remain convinced central banks around the world are willing to play backstop and keep monetary policy supportive for years to come.
There was little initial reaction to Trump saying he wanted to wind back Washington's economic relationship with China.