LONDON: Sterling gave back a small portion of the past week's gains on Tuesday but was still holding at levels which showed a complete recovery from falls after the launch of the Brexit campaign two weeks ago.
The pound fell as low as $1.37 in the aftermath of the announcement of June 23 as the date for the referendum on leaving the European Union last month and the subsequent defection of a handful of senior government figures to the "Out" side.
But bookmakers' odds - over the past decade often a better measure of UK political outcomes than opinion polls - show only a roughly 30 percent chance that Britain will leave. Analysts now broadly say that much risk is in the price on the pound.
"After the initial shock, the market has come round to the view that the likelihood is that the UK is going to stay in and the rebound in the past week is a reflection of that," said Simon Derrick, head of currency research at Bank of New York Mellon in London.
"It did go up with the euro yesterday but there has not been anything else on the macro side to explain that broader move other than a calming of nerves over the Brexit issue."
The pound gained 2.6 percent last week and it rose another cent on Monday as a recovery in oil prices drove the euro and a handful of other major currencies higher against the dollar.
It was down 0.25 percent on the day against the dollar and euro on Tuesday at $1.4233 and 77.43 pence respectively.
All eyes in the market are on Bank of England Governor Mark Carney and colleagues who were speaking on the Brexit issue in parliament on Tuesday morning.
There was no initial reaction to Carney's opening remarks.
"Carney is likely to be asked about the potential economic impact of exit and also the BoE's contingency planning, though his answers are, of course, likely to be very balanced," said Adam Cole, Head of G10 FX Strategy at RBC in London.
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