FX round-up: Caution hangs over sterling amid welter of central-bank rates calls

A pall of caution hung over sterling as investors headed for yen and Swiss franc safety over the British unit and amid a welter of central banks staying put on policy interest rates over the past 24 hours.

At about 17:05 BST, sterling had retreated 0.92% to $1.4074, and was also off 0.2% to 1.3628 Swiss francs and lower by a heady 2.6% at 146.667 yen. It gained on most commodity currencies.

Earlier today, Bank of England left its benchmark interest rate unchanged, as did the US Federal Reserve and Bank of Japan last night. Swiss National Bank also stood pat, at 0.75%.

None of this was any kind of surprise to traders who remain fixated on the outcome of Britain's 23 June vote on whether or not to leave the European Union.

This referendum was an element in the decisions by BoE, the Fed and BoJ, and its outcome will likely be a key factor in their next monetary policy decisions.

BoE, whose decision came after better than expected retail numbers, left its key rate at 0.50% and its asset purchase target at £375bn, acting under the assumption the UK will remain in the EU. In this context, its core view was that the next move for rates would be up.

"On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling’s exchange rate would fall further, perhaps sharply," a statement by BoE's Monetary Policy Committee said.

"This would be consistent with changes to the fundamentals underpinning the exchange rate, including worsening terms of trade, lower productivity, and higher risk premia."

Soon after 17:05 BST, UK 10-year gilt yields were down 1 basis point (bp) to 1.11%, while 10-year US Treasury yields tightened by one basis point to 1.57%. German 10-year bund yields contracted 1 bp to -0.03%.

"Stock markets slumped on Thursday with an aversion to risk again taking hold," said Jasper Lawler, market analyst at CMC Markets.

"With less than a week to go until the EU referendum, investors were playing even more defensive than Wales in their Euro 2016 match against England."

SwissQuote market strategist Yann Quelenn said cable's long-term technical pattern was negative and favoured a further decline towards key support at $1.3503.

"However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound," the Quelenn said in a note.

Meantime, the greenback rallied firmly after the Fed's expected decision, which followed shock recent non-farm payrolls data, and officials' unease about the UK referendum.

Fed chair Janet Yellen struck a fairly dovish tone, conceding the upcoming UK referendum was a factor. BoJ held interest rates at negative 0.1% and decided against additional stimulus.

At about 17:05 BST, the dollar was up 0.91% to €0.8962, and ahead against commodity issues. It fell 1.78% to 104.12 yen, and SwissQuote expects the cross to further weaken. The dollar-spot index, following worse than expected inflation data today, was up 0.55% to $95.134.

"The changes in the dot-plot combined with Ms Yellen's emphasis on caution takes July off the table for a rate hike, and more than likely September too," said Lawler.