Sterling suffers volatile trading amid Brexit uncertainty
Sterling see-sawed as investors reacted to growing uncertainty over the outcome of the UK's EU referendum.
The currency initially slipped against the dollar and euro, only to start recovering in mid-afternoon trading before falling again.
Meanwhile, one "volatility index" - a measure of investors' uncertainty - has hit levels last seen in the 2008 financial crisis.
The Leave campaign argued that the pound simply retreated to March levels.
Investors have been spooked by data showing the chances of a Remain vote have fallen, although markets have also been rattled by global economic worries.
With 10 days to go before the referendum vote, two polls at the weekend put the Leave camp ahead, while betting firm Betfair said the implied probability of a vote to Remain had now fallen to 68.5% from almost 80% a week earlier.
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"We expect incoming polls to move the pound more aggressively than before," said Charalambos Pissouros, senior analyst at IronFX Global.
"If new polls continue to show a tight race between the two campaigns as we approach the voting day, the outcome is likely to become even more uncertain and hence, volatility in sterling is likely to heighten further."
BBC economics editor Kamal Ahmed said hedge funds had been placing bets - short-selling - on expectations that the value of sterling will sink further. "The bears are in town," he said.
'Good for exporters'
Joe Rundle, head of trading at ETX Capital, said the markets were now on full Brexit alert. "Polls show it's now too close to call and markets are responding with some very twitchy activity. Sterling has shed more than 2% in two sessions to retrace its April lows."
Worries about the economic impact of leaving the EU were also blamed for a big fall in Asian stock markets. Japan's Nikkei index closed 3.5% down, while Hong Kong's main index slid 2.5%.
The reaction on London's FTSE 100 was muted initially, with the index down 0.3% in morning trading. However, the FTSE 100 ended the day down 1.1% at 6,044.9 points, with Lloyds Banking Group the biggest faller, down 4.2%.
On Sunday, Leave campaigner Nigel Farage told BBC1's Andrew Marr Show that sterling had recently been strengthening. "Sterling is up since March. Since Brexit became a possibility, sterling is up and FTSE is exactly the same level it was in March," he said.
He also pointed out that a weaker pound was good for UK exporters. Last week, official figures showed that the UK trade deficit narrowed in April on the back of a jump in exports.