The pound fell back below the $1.50 threshold to $1.4977 after a leaked warning from the European Commission that Labour's proposals to rein in the highest peacetime deficit for a century lack ambition and are dependent on rose-tinted growth forecasts.
Traders launched the sell-off when the markets opened this morning. Sterling later recovered slightly to trade flat at $1.5045.
Analysts said brokers were looking for any excuse to sell of the pound amid growing indications that Labour will again delay draconian measures to tackle the UK's fiscal crisis in the pre-election Budget.
A draft European Commission report, expected to be published this week, said Mr Brown's commitment to halve the £178billion deficit over four years starting in 2011 was too lax.
It failed to guarantee that Britain would meet an EU deadline of 2014-15 for cutting the deficit to below a cap of 3 per cent of economic output, which Brussels regards as a benchmark of financial health.
'The overall conclusion is that the fiscal strategy is not sufficiently ambitious and needs to be significantly reinforced,' the document said.
'A credible time frame for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned.'
The warning is a severe embarrassment for the Prime Minister, who has claimed to be leading the rest of the world out of recession.
Cyclops delenda est.