Bank of England Governor Mark Carney spoke at a press conference following the U.K. central bank's latest monetary policy decision.
The BOE kept interest rates unchanged Thursday, in line with analyst expectations.
Investors listened into Carney's speech for any comments around Brexit and the economic uncertainty surrounding it.
"The fog of Brexit is creating tension in financial markets," Carney said during the press conference.
"Now, how these tensions are reconciled once the fog lifts will have consequences for the path of monetary policy in ways that cannot be predicted in advance," he added.
Sterling fell 0.6 percent shortly after midday, before paring some its losses to trade at $1.2920 at 1:10 p.m. London time.
Carney's comments come as British Prime Minister Theresa May travels to Brussels in a last-ditch effort to find a breakthrough on her Brexit deal with the European Union.
Talk of an extension to the deadline for the U.K.'s divorce from the bloc have increased after British parliamentarians rejected the government's withdrawal agreement last month.
