The pound had a volatile trading period on Monday amid the latest Brexit headlines, recovering from an early sell-off on the back of comments by Michel Barnier before taking a weaker turn.
On Monday afternoon, the EU's chief negotiator Mr Barnier was reported to have told EU foreign minister that the main elements of an agreement are ready to present to the UK Cabinet this week.
Sterling was given a boost immediately after the news broke, though its gains were later pared back by a strong dollar.
By the end of the day, the pound was trading 0.2% lower against the euro at 1.142. It dropped 0.94% to 1.285 US dollars.
Fiona Cincotta, senior market analyst at City Index, said the currency's value would be dependent on political developments in the coming days.
"We expect the pound to trade a volatile path over the next 36 hours as Theresa May presents the Brexit treaty to her Cabinet," she said.
"The outcome of Brexit depends on Theresa May's ability to win support. Signs that she is able to draw her Cabinet together behind her and the Brexit deal could see sterling push through 1.30 dollars before opening the door to 1.3150 dollars.
"Failure by May to get the Brexit deal through could see sterling dive back towards 1.27 dollar resistance tested at the end of October."
Meanwhile, the FTSE 100 closed 52.26 points, or 0.74% lower at 7,053.08, dragged down by tobacco stocks amid reports of a possible ban on menthol cigarettes in the US.
Shares in BAT fell by 352p, or 10.2%, hitting their lowest for nearly five years, while fellow blue-chip Imperial Brands was down 60p.
Experts said the ban could impact on a business generating as much as a quarter of BAT's annual earnings.
Shares in drinks giant Diageo were flat after it offloaded 19 brands including Parrot Bay rum to US firm Sazerac in a deal worth 550 million US dollars (£428 million).
Defence supplier Babcock was 15.8p higher at 616.2p after it hit out at "false and malicious" claims made in a highly-critical report by a mystery analyst as it moved to assure over its financial health.
The engineering group - the Ministry of Defence's second largest contractor - insisted it "continues to enjoy a healthy financial position" following steep falls in its share price after a research paper posted last month by a firm called Boatman Capital.
Shire was among the top risers on the blue-chip index after Japanese drugs firm Takeda said it will hold an investor vote on its £46 billion acquisition of the company next month.
Shares in Shire were up 90p at 4,702.5p.
In Europe, the French Cac was down 0.93% and the German Dax was 1.77% lower.
On the oil markets, prices rose as Saudi Arabia signalled a cut to supply next year.
A barrel of Brent Crude was trading at 71.04 US dollars, up by more than 2%.
The biggest risers on the FTSE 100 were: Informa up 22.2p to 732.8p, Shire up 90p to 4,702.5p, Astrazeneca up 79p to 6,251p, and Bunzl up 23p 2,255p.
The biggest fallers on the FTSE 100 were: British American Tobacco down 352p to 2,962.5p, Ocado down 54.2p to 798.4p, GVC down 50p to 788p and Just Eat down 34.2p to 572.8p.
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