The pound slumped on Thursday on the back of broad dollar gains after a US rate hike, and with investors still nervous about the outcome of negotiations on the terms of Britain's planned exit from the European Union. Sterling fell 0.6 percent to $1.3097, edging down towards a one-week low of $1.3042 hit last week. Against the euro, the British currency was broadly flat at 89.03 pence.
"Political headlines continue to drive any price action on sterling with broad risk appetite muted," said Manuel Oliveri, a currency strategist at Credit Agricole in London. British opposition Labour party leader Jeremy Corbyn will warn EU chief Brexit negotiator Michel Barnier of the dangers of a "no-deal" Brexit when he visits Brussels later on Thursday, his party said.
Prime Minister Theresa May has said the EU needs to show Britain respect and come up with its own alternatives to her so-called "Chequers" proposals, which EU leaders rejected at a summit in Austria last week. The dollar rose against its rivals and particularly against the euro after the US Federal Reserve raised interest rates on Wednesday and left intact its plans to steadily tighten monetary policy, while sentiment towards the single currency was dogged by Italian budget concerns.
With little in the way of big market-moving economic data in the near term, domestic politics and sentiment around the talks on Britain's exit from the EU remain the driver for the pound. The currency suffered its biggest one-day loss since 2016 last Friday when May warned that Brexit negotiations with Brussels had come to an impasse. Her Conservative Party will hold its annual conference next week, with all eyes on whether May can win over internal critics of her Brexit proposals.