Sterling slumped over one percent in American trade away from July 9 highs against the greenback, heading for the worst loss in 10 months as markets price in lower chances of success for Brexit negotiations.
As of 04:18 GMT, GBP/USD fell 1.46% to 1.3071, with an intraday low at 1.3056, and a high at 1.3277.
Earlier UK data showed net public borrowing at £5.9 billion, compared to £3.9 billion in July, while analysts expected £2.9 billion.
UK Prime Minister Theresa May said she would never accept physical borders with Ireland in earlier remarks even in the case of a no Brexit deal, hours after EU leaders rejected her Brexit plans.
May asserted that in case of no deal, she would work to maintain the rights of EU citizens.
She called on the EU to respect the result of the Brexit referendum, while Brexit minister Dominic Raab blamed the EU in case negotiations failed, noting that the behavior of some leaders in Salzburg wasn't appropriate according to what he thought.
Otherwise, earlier US data showed the flash manufacturing PMI up to 55.6 from 54.7 in August, beating estimates of 55.1, while the services PMI receded to 52.9 from 54.8, missing estimates of 54.9.