It had already hit a 37-year low after interest rates rose earlier this week – and went even further down this morning.
As the Chancellor addressed Parliament, the pound declined by as much as 0.89% to 1.115 US dollars.
It also fell against the Euro, dropping to €1.13.
Equity markets were also particularly downbeat, with the FTSE 100 plunging to its lowest in two months.
The pound has since stabilised at around 1.119 dollars, but this remains at a low of almost four decades, at rates not seen since 1985 when Margaret Thatcher was prime minister.
Mr Kwarteng unveiled tens of billions of pounds of tax cuts and spending, saying he would cut the top rate of tax to 40%, cut stamp duty and axe the planned duty increase for beer, cider, wine and spirits.
It comes after the Bank of England launched another 0.5 percentage point interest rate hike to 2.25% yesterday and warned the UK could already be in a recession.
The central bank previously projected the economy would grow in the current financial quarter but said it now believes GDP will fall by 0.1%, meaning the economy would have seen two consecutive quarters of decline – the technical definition of a recession.
Economists had warned that that prioritising tax-cuts could put further pressure on the pound, which has also been impacted by strength in the US dollar.
Former Bank of England policy maker Martin Weale cautioned that the new Government’s economic plans will ‘end in tears’ – with a run on the pound in an event similar to what was recorded in 1976.
Economists at ING also warned on Friday that the pound could fall further to 1.10 against the dollar amid difficulties in the gilt market.
Chris Turner, global head of markets at ING, said: ‘Typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be confidently funded.
‘Here is the rub – investors have doubts about the UK’s ability to fund this package, hence the gilt underperformance.
‘With the Bank of England committed to reducing its gilt portfolio, the prospect of indigestion in the gilt market is a real one and one which should keep sterling vulnerable.’
Meanwhile, concerns over higher interest rates and pressure on consumer spending continued to weigh on the stock market.
The FTSE 100 fell by 1.48% to 7,054.64 points in early trading – its lowest since mid-July.
Philip Dragoumis, owner of London-based wealth manager Thera Wealth Management, said: ‘If foreign investors lose confidence in the country, its government and economy, which is happening at scale, Sterling could fall much further and the fallout will be devastating.
‘This will keep inflation higher for longer and growth lower. So far this year, Sterling has primarily fallen against the Dollar and this is because the greenback has been strong against all currencies.
‘Unfortunately, as oil prices and other commodities are priced in Dollars, this keeps inflation high for us.
‘However, Sterling has also fallen against the Euro this year, making our imports from Europe more expensive.
‘All this is despite the UK having higher interest rates than Europe as higher rates attract savings and inflows into the currency.
‘The UK has a trade deficit with the rest of the world, meaning it imports much more than it exports. It needs to attract capital to fund this gap and right now it is doing the exact opposite.’
Get in touch with our news team by emailing us at [email protected].
For more stories like this, check our news page.
Sign Up for News Updates
Get your need-to-know latest news, feel-good stories, analysis and more
Not convinced? Find out more »