By Mike Bird

The pound fell sharply against the dollar and euro Monday after U.K. Prime Minister Theresa May said Britain would make a definitive break with the European Union.

The pound fell 1.23% to $1.214 against the greenback, taking sterling to the levels it traded at in October. It was down 1.11% against the euro at EUR1.154. Sterling was as high as $1.24 Thursday.

On Sunday, Ms. May said in an interview with Sky News that the U.K. would aim for a clean break with the EU, reiterating her intention for Britain to negotiate control over immigration in upcoming Brexit negotiations.

"Often people talk in terms as if somehow we are leaving the EU, but we still want to kind of keep bits of membership of the EU," Mrs. May said in an interview with Sky News.

"We are leaving. We are coming out," she added, saying that the U.K. still wanted the "best possible deal" in terms of trade.

The EU's 27 other heads of government have said that freedom of movement for EU citizens is a requirement for access to the bloc's single market, with is the biggest destination for British exports.

The pound plunged in October following similar comments from Ms. May at the Conservative Party conference.

On Monday, a spokeswoman for Mrs. May said the Prime Minister hadn't ruled anything out or in.

"She's said she wants the best possible deal for trading with and operating within the single market," the spokeswoman said.

Though U.K. economic data has surprised on the upside, many analysts believe the pound will continue to head lower.

Sterling is also being hit by the strong dollar, which has gained in recent months on a belief that the U.S. Federal Reserve will raise interest rates at a faster rate in 2017.

Morgan Stanley sees sterling falling to $1.17 this quarter, because it thinks political uncertainty will impact investment in 2017.

However, some forecasters disagree.

"We think further signs that the government is being forced toward a soft Brexit will emerge, enabling sterling to climb back to about $1.30 and EUR1.24 by the end of this year," Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said in a research note.

Jenny Gross contributed to this article

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

January 09, 2017 06:28 ET (11:28 GMT)

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