LONDON: Sterling gave back some of the past week's rise on Tuesday but was still holding near levels seen before the launch of the Brexit referendum campaign two weeks ago.
The pound fell as low as $1.37 in the week after Britain announced June 23 as the date for the vote on whether to leave the European Union 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 broadly say that most of the risk is now priced into sterling.
Testimony in parliament by Bank of England Governor Mark Carney on the implications of the Brexit campaign gave little new to go on, though he did broadly warn that sterling and economic sentiment might suffer if Britons voted to leave.
"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," Bank of New York Mellon head of currency research, Simon Derrick, said.
"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 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 0.4 percent on the day against the dollar and 0.7 percent against the euro on Tuesday at $1.4210 and 77.75 pence respectively.
Michael Sneyd, a strategist at BNP Paribas, said that the French bank's quantitative models of positioning and direction for currencies valued sterling at roughly $1.43 in the short-term.
Options markets, however, still show their biggest bias towards more weakness for sterling over the next six months in more than 5 years, and implied volatility are still close to their highest since 2010 parliamentary elections.
"There wasn't really anything decisive from Carney as you would expect," Sneyd said.
"In terms of what we see from the models, the positioning against sterling has been quite extreme. The market is holding a lot of short positions. But the move from $1.38 up to here probably brought it back in line with what is priced into other asset markets according to our STEER model."
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