The pound started the day at a three-year low against the dollar but reached its peak of the day just after Boris Johnson lost his parliamentary majority.
Amid Brexit tumult and speculation about a snap election in October, the pound had tumbled to below $1.20, its lowest level in three years, this morning.
But it reached its highest peak of the day just after Johnson lost his majority thanks to a defection from Phillip Lee to the Liberal Democrats.
WATCH: Watch the exact moment Boris Johnson sees his parliamentary majority vanishBloomberg reported that sterling reversed some losses to its highest point of the day, as it has been seen as reducing Johnson’s leverage and thus the chances of a no-deal Brexit.
The pound’s earlier low against the dollar marked its lowest level since the “flash crash” in October 2016.
Market experts said this morning an election announcement could spark another collapse in the value of the pound, which could hit levels last seen under Margaret Thatcher in the 1980s, excluding the 2016 “flash crash”.
Neil Wilson, chief market analyst at Markets.com, said: “We are very much in uncharted waters here.
“We could feasibly see $1.15 or even $1.10 in the coming weeks if traders decide to move against the pound.”
He added: “The outlook for sterling may well worsen if there is an election and will certainly deteriorate if it’s a no-deal.”
Craig Erlam, senior market analyst at oanda.com, said that despite the concern, the currency isn’t yet in “free-fall”.
He said a Brexit extension is the “best case” scenario, but a Corbyn government could equally worry the markets.
“In the best case we have the uncertainty of an extension [to Article 50], in the worst case we could be headed for no-deal or a Corbyn government, which markets appear to dislike.”
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