NEW YORK, Dec 19 (Reuters) - Sterling dropped to a 3-month low below the psychologically important $2.00 level on Wednesday, as dealers continued to price in expectations of an interest rate cut by the Bank of England early next year.

The pound extended its decline, falling 0.7 percent on the day to a low of $1.9992, according to Reuters Matching .

Traders said a break of a technical pivot point in the $2.0030 area also pushed sterling lower but said thin trading conditions also contributed. "It's a typical December market. Most guys are done for the year and moves are exaggerated," said a currency trader in New York.