NEW YORK (Reuters) - Sterling tumbled on Thursday after British ministers resigned in protest against a draft Brexit agreement, rekindling fears of a chaotic departure for Britain from the European Union in 4-1/2 months.

U.S. dollars and other world currencies lie in a charity receptacle at Pearson international airport in Toronto, Ontario, Canada June 13, 2018. REUTERS/Chris Helgren

The pound recorded its worst one-day loss against the euro since October 2016. Against the yen, it posted its steepest daily decline since late February.

Traders flocked into the perceived safety of the dollar and yen as the pound gyrated this week over Brexit. On Thursday, British Prime Minister Theresa May said she won the backing of her senior ministers for a draft divorce deal, but many in her government are unconvinced and on Thursday her Brexit minister Dominic Raab, and other ministers, resigned.

“Heightened political uncertainty in the UK kept the pound on volatile ground,” Western Union Business Solutions analysts wrote in a research note. “Sterling was spellbound, alternating between gains and losses, after Britain’s Brexit minister resigned.”

Raab’s resignation left May battling for survival and trying to win over her Conservative Party to support the EU withdrawal agreement. She vowed to fight for the draft deal amid calls from her own Conservative party for a no-confidence vote on her leadership.

At 3.09 p.m. (2009 GMT), sterling GBP=D3 was down 1.53 percent at $1.2783 and down 1.7 percent at 145.08 yen.

Against the euro, it EURGBP=D3 was 1.84 lower at 88.685 pence.

“We are going to see more selling in the sterling. At least that’s its short-term path,” said James Athey, senior investment manager at Aberdeen Standard Investments in London.

Athey sees the pound coming back in the medium term as Britain would weather the effects from Brexit better than what many traders expect right now.

GRAPHIC: Sterling positions and valuations - tmsnrt.rs/2PrxbPH

Reports out of Italy that Prime Minister Giuseppe Conte was looking to work with the EU over his government’s 2019 budget, which has been rejected by Brussels, to avert massive fines had earlier helped support Italian government bond markets and the euro.

The single currency was up 0.2 percent versus the greenback EUR=EBS at $1.1333was up 0.19 percent to 128.73 yen, reversing an earlier 0.55 percent loss.

An index that tracks the greenback against six major currencies .DXY was up 0.18 percent at 96.981. It touched a 16-month high of 97.693 on Monday.

The dollar was down 0.07 percent at 113.54 yen.

The greenback’s gains were capped following some cautious comments about the economic outlook from Federal Reserve Chairman Jerome Powell overnight.

They were reduced further after a Financial Times report said U.S. Trade Representative Robert Lighthizer has told some industry executives that another round of U.S. tariffs on Chinese imports has been put on hold.

CNBC reported Thursday that Lighthizer’s office denied telling executives the next round of tariffs was on hold.