The pound slid to a six-month low against the euro and dollar, after Bank of England Governor Mark Carney issued a warning that escalating protectionism could "shipwreck" the world economy.
In a speech, Carney said international trade tensions could lead to a new Cold War, which would cost the global economy billions, with fears over this outcome already causing a "sea change" in how business is conducted globally.
While trade between the US and the USSR was worth some $2bn at the height of the Cold War, Carney has pointed out that US-China trade today "clocks $2bn a day".
The Telegraph quotes him saying: "Certainly the portents are worrying. The storm that the modern Prospero has conjured is having an impact."
Carney is concerned that global protectionism will become "the norm", although he added it is too early to say whether current tensions would "shipwreck the global economy or prove to be a tempest in a teacup".
Meanwhile, the Governor said the UK will also be deeply affected by this situation, suggesting the central bank may have to resort to dovish measures in the long term if things escalate.
His comments come as the US threatens the European Union with fresh tariffs worth $4bn on a raft of goods, from olives to Scotch whiskey.
Meanwhile, closer to home, Moody's has issued a warning that the UK is likely to enter recession and see its rating downgraded should it leave the EU without a deal.
The rating agency is also concerned a disorderly exit will put pressure on the UK's public finances, a sentiment already expressed by Chancellor Philip Hammond.
The Chancellor has previously warned that a no-deal Brexit will wipe out all the fiscal headroom in the UK, meaning promises of extra spending made by PM-hopefuls are futile.