Alongside the biggest moves in the pound in living memory the euro, which is expected to struggle given worries about the impact of a Brexit on the euro zone economy, also dropped sharply against the dollar.
The franc surged to its strongest in almost a year against the euro and the yen to its strongest in more than two years.
There was no clear sign of intervention by global central banks but Japan said it would respond to "extremely nervous" exchange-rate moves, signalling a readiness to intervene to stem excessive yen strength.
The pound fell more than 10 percent to $1.3228, its lowest since before the world's major economies signed a deal to weaken the dollar in September 1985. By 0630 GMT, it had recovered around 4 cents from those lows to trade at $1.3666.
Analysts expect months of economic and political turmoil which will dwarf the pressure on UK markets following sterling's "Black Wednesday" in 1992 when Britain was forced out of the pre-euro Exchange Rate Mechanism.
"The UK has voted to leave the EU and this decision hits the British economy at a difficult time," said Hans Redeker, head of currency strategy at Morgan Stanley, adding investors' attention will shift to Britain's large current account of deficit of 7 percent and economic growth is likely to weaken.
His bank expected sterling to fall to between $1.25 and $1.30.
Leading UK bank HSBC also cut its quarter end and year-end forecasts for sterling. It expects sterling to fall to $1.25 by the end of third-quarter and then to $1.20 by the end of 2016, as uncertainty lingers for the rest of the year. They also cut their forecast for the euro for the end of the year to $1.10 from $1.20 previously.
Euro lower
Sterling also fell to its lowest in two years against the euro, with some expecting it to drop towards parity in coming months. The euro rose more than 8 per cent to 83.15 pence , hitting its highest level in more than two years.
Yet the euro was under pressure against most other currencies as investors worried Brexit could spark anti-establishment movements in other European countries.
The euro fell 3.6 per cent against the dollar to $1.0912, a low last seen in March. It fell nearly 2 per cent against the franc.
The dollar index rose 3 per cent. If sustained, that would be its biggest daily gain since 1978.
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