Sterling dived to three-month lows in thin Asian trade early on Monday, after media reports that the British government is prepared to make a "hard" exit from the European Union rekindled investors' fears about the impact of the impending move.

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Sterling stole the spotlight from the dollar, which has come under pressure in recent sessions as investors pondered what to expect from US President-elect Donald Trump's economic policies after he takes office on Friday.

The pound sank as low as USD 1.1983, depths not seen since the flash crash of early October. It last stood at USD 1.2038, down 1.1 percent on the day.

Dealers said the market was reacting in part to a report in The Sunday Times newspaper that British Prime Minister Theresa May will this week signal plans for a "hard Brexit" by saying she's willing to quit the European Union's single market to regain control of Britain's borders.

Investors have been worried such a decisive break from the single market would hurt British exports and drive foreign investment out of the country.

May has said she will trigger Article 50, starting the formal withdrawal from the EU, by the end of March. So far, she has revealed few details about what kind of deal she will seek, frustrating some investors, businesses and lawmakers.

May's speech on Tuesday will stress the need for Britons, who voted for Brexit by 52 to 48 percent in last June's referendum, to unite around common goals such as protecting and enhancing workers' rights.

The euro was up 0.9 percent at 0.8827 pounds, while sterling fell 1.4 percent on the perceived safe-haven yen to 137.65 yen.

The Japanese currency gained broadly, with the US dollar dipping 0.2 percent to 114.30 yen, moving back toward last week's low of 113.75.

"The risk-averse sentiment stemming from the 'hard Brexit' is pushing down the dollar/yen," Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"But so far, I think the correction from the dollar/yen's high in December, and concerns about stronger protectionism under the new US presidency have been the dominant theme."

Trump revealed few policy clues at his first press conference last week since his November election victory. The dollar rose after the election on expectations that his administration would embark on stimulus to boost growth and inflation, prompting the US Federal Reserve to adopt a faster pace of interest rate hikes.

But Trump's protectionist stance has also added to some investors' risk aversion, as he has threatened to impose retaliatory tariffs on China, build a wall along the Mexican border and tear up the North American Free Trade Agreement (NAFTA).

Buoyed by the weaker pound, the dollar index, which gauges the greenback against a basket of six major rivals, added 0.2 percent to 101.39.

The euro edged down 0.1 percent against the dollar to USD 1.0629.

Later this week, the European Central Bank is widely expected to hold policy steady at its regular meeting on Thursday, according to economists polled by Reuters. Last month, the ECB surprised markets by saying it would trim its monthly bond purchases to 60 billion euros starting in April.

First Published:Jan 16, 2017 8:34 AM IST