THE pound dropped on Monday after Prime Minister Theresa May said that 95 per cent of the Brexit deal had been agreed, but that issues including the Irish border were still not settled.
Against the US dollar, sterling was down almost 0.7% to 1.298. Versus the euro, it dipped 0.1% to 1.1311.
Fiona Cincotta, senior market analyst at City Index, said: "With resolution of the issue seemingly not any closer than last week, sterling is weakening against the dollar but not as much as against the euro.
"The common currency is showing surprising resilience in the face of Italy's looming conflict with the EU over its budget and renewed weakening of Italian bond market."
The weaker pound was not enough to boost blue-chip stocks in London, which typically benefit from a decline in sterling's value due to the high level of profits which are made in dollars.
The FTSE 100 closed almost flat at 7,042.8 after shedding seven points during trading.
"Stocks in Europe had a positive session earlier in the day, but the gains were eroded in the afternoon," said CMC Markets analyst David Madden.
"Chinese markets had a stellar session last night, but the slightly bullish start to the European session should have been a sign that traders weren't overly optimistic.
"Concerns about the political stand-off between Italy and the EU, along with strained geopolitical tensions, encouraged traders to dump stocks."
The French Cac was 0.62% lower, while the German Dax fell 0.26%.
Gambling firms took a hit from reports that Chancellor Philip Hammond is looking to crack down on offshore betting companies. Paddy Power Betfair was down 270p to 6,485p, and GVC Holdings fell by 22.5p to 937.5p.
The Treasury's decision will offset the black hole left on its books by a limit on the maximum stakes for fixed odds betting terminals (FOBTs), due to come into force in 2020.
Meanwhile, shares in NMC Health led the FTSE 100 risers, climbing 170p to 3,200p after the company upgraded its expectations for the year.
It now expects revenue to grow by 24%, which is 2% higher than a previous estimate - and earnings are forecast to be 480 million US dollars.
"Overall this represents good news for investors," said Ian Forrest, investment research analyst at The Share Centre.
He added: "The confirmation that the company remains on track to achieve a 25% profit margin by 2021, and still has the benefit of a large joint healthcare venture with the Saudi government to come, is also very positive for investors."
In Dublin, Ryanair shares were flying higher after there was no further downgrade to earnings expectations in Monday's half-year report.
The Irish carrier booked a 9% decline in pre-tax profits to 1.3 billion euros (£1.1 billion) in the six months to September 30.
The company had already warned the market of higher fuel and staff and compensation costs, which offset strong revenue growth.
A barrel of Brent oil was trading 0.5% lower at 79.59 US dollars.
The biggest risers on the FTSE 100 were NMC Health, up 170p to 3,200p, Royal Mail up 14.5p to 358.9p, Easyjet up 36p to 1,104p and Rightmove up 11.35p to 433.7p.
The biggest fallers on the FTSE 100 were Paddy Power Betfair, down 270p to 6,485p, Wood Group, down 20.6p to 710p, Rentokil Initial down 8.3p to 295.5p and GVC Holdings down 22.5p to 937.5p.
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