U.K. Prime Minister Theresa May reminded markets Brexit could be a hard hit on the U.K., and it's in the EU's interest to make sure that's the case, analysts said.
"There's been a lot of wishful thinking about the plans of Brexit and how it might pan out," said Lee Ferridge, head of macro strategy, North America, State Street Global Markets.
"I think the market's waking up to the fact that this isn't going to be a 'soft' Brexit," he said.
The United Kingdom in June 2016 surprised with a vote to leave the European Union, the so-called Brexit. Global stock markets quickly recovered after a two-day sell-off, while the British pound held near a more than 30-year low. Traders then turned their attention to the U.S. presidential election, and some expected Brexit might not involve as significant changes in the U.K.'s economic relationship with the EU as initially forecast.
But on Monday, market concerns about negative spillover from Brexit resurfaced in the pound. May indicated in a weekend interview with Sky News that Brexit would likely mean a full end of the U.K.'s tariff-free access to the single European market.
Sterling dropped more than 1 percent to $1.2125, its lowest since Oct. 28, 2016, when it traded as low as $1.2115.