By Ritvik Carvalho
LONDON (Reuters) - Sterling fell from a three-week high against the dollar on Monday after a spokesman for British Prime Minister Theresa May said she would formally launch Britain's divorce talks with the European Union on March 29.
The United Kingdom has informed European Council President Donald Tusk's office of May's intention, the prime minister's spokesman said, confirming an earlier Reuters report from Brussels.
The pound, which had been up as much as a third of a percent against the dollar in London morning trade, reversed course, falling as low as $1.2366 in the half-hour following the statement, down 0.2 percent on the day.
"There had been some talk May would be forced to delay it, which would have been good for the pound, but this removes any doubt," said Neil Jones, Mizuho's head of hedge fund FX sales in London.
The pound was also down 0.2 percent at 86.79 pence per euro.
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Sterling has lost nearly a fifth of its value since last year's shock Brexit vote, pressured by investor uncertainty over the terms of Britain's exit deal from the EU, along with a stream of data suggesting the UK economy may be headed for a slowdown.
The pound has also come under selling pressure amid calls for another Scottish independence referendum, as investors consider the increased uncertainty posed by a potential break up of the United Kingdom.
Data on Friday showed speculators had raised their bets against the British currency versus the U.S. dollar to record-highs in the week up to last Tuesday. [IMM/FX]
Some analysts are warning of the potential for traders to be forced out of their short positions if the exchange rate moves against them, which could prompt volatility.
"It is of course true that the build-up in speculative shorts raises the potential for a violent short-squeeze," Goldman Sachs analyst Michael Cahill wrote in a note to clients.
"However, in the quiet data period ahead, that seems like less of a risk than normal, in no small part because Brexit-related uncertainty is unlikely to decline significantly anytime soon."
European Council President Donald Tusk said on Monday he would present the other 27 EU states with draft Brexit negotiating guidelines within 48 hours from the moment Britain formally triggers its exit from the bloc.
(Editing by Patrick Graham, Jemima Kelly and Ed Osmond)