With no parties showing majority in the June 8 UK General Election, the pound was down sharply as traders reacted to the early results, a media report said.
The currency market had been expecting a clear victory for Theresa May's Conservative Party, but the results so far, and the exit poll, have cast doubt on its majority, the BBC reported.
Sterling fell as low as $1.27, down about two and a half cents from its level late on Thursday.
It has recovered a little, but the market was volatile and traders were cautious.
"Given the patchy history of exit polls, this time we will have to wait for the seat by seat results, setting the pound up for a volatile day," Sean Callow, senior currency analyst at Westpac told the BBC.
The exit poll cast doubt on an overall Conservative majority, raising concerns about increased uncertainty and a possible delay to Brexit negotiations.
The BBC projects that the Conservatives would be the largest party with 318 seats, they require 326 for a majority.
Neil Wilson, senior market analyst at ETX Capital said the exit poll was a shock for the financial markets.
"It's fair to say markets had been a little complacent about this result," he added.
If the election resulted in a hung parliament the pound could fall as low as $1.25 on Friday, Wilson told the BBC.
"Trading is pretty thin overnight and the volumes will increase markedly later this morning when traders in London arrive at their desks, which might produce some more decisive price action," he added.
Sterling has been trading in a range between $1.28 and $1.30 in recent weeks.
Against the euro the pound was down by one per cent at 1.142 euros.