Sterling fell half a cent against the dollar as the breakthrough was confirmed in Brussels, from above $1.35 to $1.3465.
It was also largely flat against the euro at €1.1460.
European Commission president Jean-Claude Juncker declared “sufficient progress” had been made in the first phase of Brexit talks to allow negotiations on future trade to begin later this month.
It was the breakthrough that had been expected earlier in the week – only to be foiled because of wrangles over the Irish border.
Market watchers suggested the reaction reflected many investors ‘going long’ on sterling and taking some money off the table.
Craig Erlam, senior market analyst at OANDA, said: “The response in the pound to the announcement may come as a surprise given just how significant today’s agreement is but it’s worth noting that this has been in the making over the last couple of weeks and it was in both sides’ interest to get this done today.
“Had the two sides failed to come to an agreement then the downside in the pound may well have been far greater.
“We’ve seen a rally in the pound over the last couple of weeks on the expectation of a deal being agreed so what we may be seeing is simply a case of buying the rumour and selling the fact.”