The pound hit a fresh two-month low against the dollar on Monday (9 January), after comments from Prime Minister Theresa May seemed to suggest Britain could be heading for a so-called "hard Brexit".
Sterling was 0.79% lower against the dollar, trading at $1.2169, the lowest level against the greenback since late October. The UK currency was also 0.76% lower against the euro, falling to €1.1558, after previously hitting a seven-week low of €1.1518.
The decline was sparked by the PM's interview with Sky News, during which May claimed the UK could not hang on to "bits of EU membership", hinting Britain would leave the EU's single market.
"Often people talk in terms as if we are leaving the EU but we still want to keep bits of membership of the EU. We're leaving, we're coming out," she said.
Chris Saint, senior analyst at Hargreaves Lansdown currency service, said: "The pound is likely to become more sensitive to continued signs the government will adopt a hard-lined approach as the expected Article 50 trigger date nears.
"The comments have also done little to dispel concerns over the apparent lack of a coherent plan for upcoming negotiations."
Naeem Aslam, chief market analyst at Think Markets UK, said the government was playing with fire and creating more uncertainty, which would in turn lead to the pound declining even further.
"Last year, we said that the pound has a tendency of touching the mark of $1.18 against the dollar and we are still maintaining our call," he said.
"The government needs to be consistent with their message so that market can digest all the bad news and move on with it. You cannot carry on giving conflicting messages as this puts more traders on the side line."
FXTM research analyst Lukman Otunuga added the pound faced a drastic decline this week, amid conflicting reports over the government's Brexit strategy.
"With the battle of words between politicians on how the government had a 'muddled thinking' over Brexit adding to the uncertainty, sterling should be destined to sink lower this week," he said.
"It should be kept in mind that uncertainty remains the name of the game when dealing with the pound and such should make the weakness a recurrent theme."
Elsewhere, the dollar struggled for direction, as last week's rally petered out. The greenback was down 0.32% and 0.41% against the yen and the Australian dollar, fetching ¥116.64 and AUD$1.3644 respectively but gained 0.14% against the euro, trading at 0.9508 euro cents.
The US currency was also higher against its Canadian counterpart, gaining 0.19% to buy CAD$1.3262.