The pound fell to its lowest in over a year and was dubbed the "Great British peso" and UK gilts sold off in what analysts and economists said was part of wider shifts in government bonds plus worries about rising inflation and fiscal policy in Westminster.
In early trading, sterling slumped to its lowest against the dollar since autumn 2023, down 0.8% to below 1.224, down 3.6% over the past month.
Government bonds have been selling off for many countries in recent days, but UK gilts have done so more than others, sending yields higher and putting pressure on stocks.
The 30-year gilt yield briefly hit 5.445% on Thursday, surpassing spikes following Liz Truss's own Budget crisis period in 2022.
The turmoil in the financial markets "implies a massive loss of confidence in the UK government", said Russ Mould, head of investment at AJ Bell.
"The feel-good factor around the UK following last summer’s general election has quickly disappeared and turned to gloom as companies brace themselves for higher costs and consumers worry about job security and the cost of living going up again."
He said investors are worried about extra borrowing by the government to achieve its plans, but he noted that the pound remains considerably stronger than when Truss briefly ran the country.
Similarly, Citi currency strategists said the pound was under pressure amid a "combination of UK fiscal concerns and a broader sell-off in fixed income" that has driven yields higher in recent days.
They said sterling was behaving more like an emerging markets currency - calling it the "Great British peso" - for its reaction to rising term premia, which is the higher payout investors usually get from longer-term debt.
Citi's strategists said they think the risks of a Truss-like budget crisis are "low", but the ideal timing and levels for buying the pound "remain unclear".