Britain's currency reached 1.211 against the US dollar before rising back to 1.217 in later trading.
The pound also fell against the euro to sit at around 1.148.
It comes after comments from Prime Minister Theresa May suggested the UK is likely to leave the single market in a so-called 'hard' Brexit.
Experts warned sterling is set to remain volatile until investors understand how the exit from the European Union (EU) will work - but added the UK's strong economy could pave for a marked recovery against the euro.
Kathleen Brooks, research director at City Index, said: "We expect GBP to remain the most volatile of the G10 currencies in the coming months while we wait for the triggering of Article 50.
"Essentially the market is likely to re-establish shorts in GBP, after a brief respite at the end of last year, until it is quite confident that Brexit won’t be ‘hard’ or disastrous for the UK economy.
"While Theresa May says that we can’t keep ‘bits of the EU’, sterling isn’t safe from the bears until we know what will replace the single market."
She added: "It is worth noting that politics has a powerful influence on FX markets, and Brexit uncertainty is likely to remain a key theme as we lead up to the triggering of Article 50 at some stage this quarter.
"However, politics have hit the pound in fits and starts – immediately after the referendum result last June, in October after the Tory Party conference, and at the start of this year.
"After these sharp sell-offs periods of relative calm and recovery tend to follow.
"Due to the pound’s favourable yield advantage over the euro, we think that EUR/GBP could be more at risk from a pound recovery, once the market forgets about the latest May comments and moves onto something else."
The pound is also set to rise against the euro as the European Central Bank (ECB) keeps rates ultra low and extends its money-printing programme.
Fawad Razaqzada, market analyst at Forex.com, said: "Against the euro, the pound may be able to make a more significant recovery than against the dollar because of the fact the ECB is a significantly more dovish central bank than the Fed."