At one stage it was down as much as 2.4% at $1.4058, its lowest level since March 2009, before later recovering.
The move follows London Mayor Boris Johnson joining the campaign to leave the EU after Prime Minister David Cameron set a June referendum date.
The steep fall adds to losses made by the pound over recent months.
At 16:00 GMT the pound was trading at $1.4135, down 1.4% from the previous close.
So far this year, fears of a British exit from the EU - dubbed 'Brexit' - have already pushed the pound down by more than 4% against the US dollar.
Analysts said that was likely to continue to direct sentiment until the vote.
"Today's weakness appears to reflect an increased probability of Brexit after political reaction to the new deal on EU membership was more split than the PM would have hoped," said Sam Hill, senior UK economist at RBC Capital Markets.
http://www.bbc.com/news/business-35628733
The move follows London Mayor Boris Johnson joining the campaign to leave the EU after Prime Minister David Cameron set a June referendum date.
The steep fall adds to losses made by the pound over recent months.
At 16:00 GMT the pound was trading at $1.4135, down 1.4% from the previous close.
So far this year, fears of a British exit from the EU - dubbed 'Brexit' - have already pushed the pound down by more than 4% against the US dollar.
Analysts said that was likely to continue to direct sentiment until the vote.
"Today's weakness appears to reflect an increased probability of Brexit after political reaction to the new deal on EU membership was more split than the PM would have hoped," said Sam Hill, senior UK economist at RBC Capital Markets.
http://www.bbc.com/news/business-35628733
