The British pound fell as much as 0.8% against the US dollar on Monday after Federal Reserve Governor Kevin Warsh said resilient US economic activity and sticky services inflation justified keeping further rate increases under consideration. Sterling reached $1.2634, its weakest level of the session, before recovering to around $1.2660. The decline was the pound's sharpest one-day drop in three weeks. Traders raised the probability of a quarter-point Federal Reserve hike at the June meeting to 38% from 24% a day earlier, according to CME Group's FedWatch tool. A stronger dollar tends to pressure sterling because higher US yields make dollar-denominated assets more attractive, while the Bank of England is viewed as closer to the end of its tightening cycle. The dollar index rose 0.4% to 104.32, its highest level in more than a month, and the 10-year US Treasury yield climbed 6 basis points to 4.31%. A weaker pound could increase the UK cost of imports priced in dollars, including oil and other commodities, adding to inflation pressures while UK growth stagnates and inflation remains above the Bank of England's 2% target. Traders will watch upcoming US inflation data and the Bank of England's next policy meeting for direction.