The pound has continued to fall amid fears of political instability, as former Conservative party chairman Grant Shapps emerged as the ringleader of a plot to oust prime minister Theresa May.
Sterling fell 0.6% to $1.303 against the dollar, while the euro rose 0.5% against the pound to trade at 89.7p.
Shapps told The Times: 'I think having lost an election the party must look for a new leader to take us forward'.
The pound briefly pared losses in the early afternoon, after May hit back at plotters, saying she would provide 'calm leadership'.
But the respite for sterling was only temporary, and the currency is now heading for a 2.7% fall against the dollar over the last week.
Traders have been hit by jitters over May's ability to cling on as prime minister, after a poorly-received speech at the Conservative party conference earlier this week.
Kathleen Brooks, research director at City Index, said markets were already pricing in May's resignation and her replacement by a Brexiteer.
'The strength of the downside momentum in sterling suggests that the pound's bloodbath has further to run,' she said.
'We have sliced through so many support levels this week that we don't even think $1.30 is likely to hold at this stage.'
Oliver Harvey, macro strategist at Deutsche Bank, said investors feared a Tory party leadership contest's 'potential to derail Brexit negotiations as they reach a critical juncture and create additional stress for markets'.
He said worst outcome for markets would be a full leadership contest, triggered by at least 47 Conservative MPs expressing no confidence in May.
'The market implications are quite negative,' he said. 'First, based on recent precedent, the contest would take around two months to conclude, putting on hold Brexit negotiations at a critical juncture.
'Second, to appeal to the Conservative party membership, it is likely that the successful candidate fights on a hard Brexit platform, which could undermine market confidence.'
Harvey argued an orderly transition was more probable, with MPs already united behind a replacement, which could prove better received by markets. However, he said May remaining as PM was still the most likely outcome.
Viraj Patel, foreign exchange strategist at ING, said a Tory leadership contest 'could see the pound getting quickly dumped, with short speculative positions being rebuilt'.
'First and foremost it would pose major doubts over a Number Bank of England rate hike, which markets are all but pricing in at this stage, while it could dampen some of the recent cyclical upside seen in the UK data, especially the forward-looking indicators.'
The pound's fall helped the FTSE 100 edge 12 points higher to 7,520. A weaker pound tends to support the index, whose members rely on overseas markets for around three-quarters of their revenues.