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By Jemima Kelly
LONDON, Jan 12 (Reuters) - Sterling slipped on Thursday after a spokeswoman said British Prime Minister Theresa May will give a speech next week on her plans for leaving the European Union, which sparked fears that she would suggest Britain will undergo a "hard Brexit".
Sterling skidded to its lowest levels for almost 32 years -excluding a "flash crash" in October - this week, after May said over the weekend that Britain would not keep "bits" of EU membership when it leaves the bloc.
Investors interpreted this to mean Britain would lose access to the lucrative European single market in order to give priority to reasserting full control of its borders to curb immigration. This scenario has come to be known as "hard Brexit" - a phrase that May herself rejects.
The pound had rebounded to as high as $1.2317 earlier on Thursday against a dollar weakened by a lack of detail on President-elect Donald Trump's spending plans in his first news conference since his election on Wednesday.
But after the news of May's speech, it slid backwards to trade at $1.2207, slightly lower on the day though well clear of Wednesday's low of $1.2038.
Against a broadly stronger euro, sterling fell 0.9 percent to its weakest in almost two weeks, at 87.34 pence.
"If you were to look back at recent performances, it's rare that she's said anything that's been taken positively, so the risk - if you had to go one way or another - is that she again pushes the market in the direction of a relatively hard exit, which is not a positive for the currency," said RBC Capital Markets currency strategist Adam Cole.
Traders are also awaiting a decision - expected in the coming days - from Britain's Supreme Court on whether to uphold a High Court ruling last year that said May's government needed parliamentary approval before triggering "Article 50", which will formally kick off Brexit negotiations with Brussels.
Investors reckon that if lawmakers from across the political spectrum - a majority of whom backed staying in the EU in June's referendum - are involved in activating Article 50, they will push for a "softer" Brexit, which would be sterling-positive.
A further boost to sterling could come if Britain is forced to delay its exit talks because of a potential suspension of Northern Ireland's regional assembly - which a lawyer said on Wednesday was a possibility. The resignation of Northern Ireland Deputy First Minister Martin McGuinness on Monday effectively collapsed the devolved government.
"If the Supreme Court were to both affirm the High Court decision and also ruled that the government had to obtain the approval of devolved legislatures, that's even more positive for sterling. But the noise we're hearing is that that's probably not going to happen," said Tan.
Bank of England Governor Mark Carney said on Wednesday that the immediate risks from Brexit had fallen, and that the central bank may now raise its forecasts for the UK economy. (Reporting by Jemima Kelly; editing by Mark Heinrich)