Sterling dipped back below $1.45 on Friday after racking up its biggest daily gains since late-2009 in a broad sell-off of the dollar a day earlier. The Bank of England, contrary to some bets on the margins in markets, did nothing after its meeting on Thursday to undermine the improvement in the pound's value since it fell to a 7-year low around $1.38 at the end of February.
But given concerns over gains for the "Out" campaign in the run-up to June's referendum on whether Britain should stay in the European Union, traders say sterling still looks vulnerable to any improvement in sentiment for its major currency peers, particularly the dollar. By late afternoon in London, the pound was marginally lower against the dollar at $1.4475 and 0.2 percent higher at 77.95 pence per euro. "The pound's rally has been all about a squaring of positions - we prefer resistance to come in between here and $1.4600 to keep the focus on the downside," said John Hardy, Head of FX Strategy at Saxo Bank.
Sterling has gained almost exactly as much as the euro against the dollar over the past two weeks, having sunk 9 percent since December, while the common currency remained roughly steady. That suggests the main driver of the pound's recovery has been external factors. This week's biggest domestic event was a poll on Tuesday showing the "Out" camp in the 'Brexit' referendum campaign nudging ahead on popular support. A number of banks have warned of the risks of a crisis that could see sterling slide by up to 20 percent if Britain votes to leave the European Union on June 23.
Investors worry that leaving the European Union would depress growth and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 percent of national output. "Technically, we hit a lot of resistance around $1.45 but Brexit fears have gone nowhere," said Tobias Davis, Head of Corporate Treasury Sales at Western Union in London.
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