FX round-up: Doves, hawks and black swans; the avian life of pre-Brexit sterling

Sterling buzzed in higher on most major crosses today as an unfamiliar calm took root amid a two-day suspension of Brexit campaigning after the murder of Labour MP Jo Cox on Thursday.

This was in stark contrast to the volatility spawned by a string of recent polls that suggested UK would vote to quit the European Union on 23 June.

Today, Morgan Stanley put the probability of a Bremain at 55%. Capital Economics looked to skin-in-the game gauges provided by bookies, which saw a Bremain outcome twice as likely as a Brexit.

Inevitably this led to a reversal to sterling's recent glum performance -- 'out' sentiment pushes the British unit lower, whereas 'in' thinking gives it wings to fly higher.

At 17:20 BST, sterling was up 0.79% to $1.4315 and up 0.43% to €1.2708. It firmed on commodity currencies except the rand.

It even firmed versus safe-haven issues, eroding some of their weeks-long bull-run. Sterling was up 0.21% to 1.3735 Swiss francs and up 0.8% to 149.269 yen.

At about 17:53 BST, defensive-play gold was down 0.44% to $1,292.7 an ounce. Same time, UK 10-year gilt yields were up 3 basis points to 1.14%. Both the yellow metal and Gilts prices were coming off their recent dizzying highs.

"One of the triggers for the change in market sentiment appears to be the suspension of Brexit campaigns following the tragic killing of MP Jo Cox," said Jasper Lawler, market analyst at CMC Markets.

How that might play out in terms of sterling's performance next week was anyone's guess, noted several market experts, with a further flurry of polls anticipated ahead of the Thursday ballot.

"There is potential for black-swan scale moves," observed Monex Europe head of market analysis
Ranko Berich, referring to Brexit and a tough-to-predict event or occurrence beyond normal expectations.

SwissQuote said investors likely saw the referendum result as -- forgiving the irony -- akin to a coin toss, but looked to short sterling-yen and euro-Swiss franc in a Brexit return, benefiting as the British unit slumped.

Bank of England, US Federal Reserve, Bank of Japan and Swiss National Bank have all said the UK vote figured in the decisions to stand pat on rates this week.

"Everything revolves around the growing uncertainty and it is this same uncertainty over the immeasurable impacts of a Brexit to the global economy that has kept the Federal Reserve and most other central banks on standby," said FXTM research analyst Lukman Otunuga.

At least in the US, this recent dovish stance from the Fed was a reversal from the hawkish jawboning of several but not all officials 2-3 weeks ago, among them Federal Reserve bank of St.Louis president Jim Bullard.

Bullard today revealed himself as the lone top policymaker expecting a single 25 basis point rate hike and then no further increases until end-2018.

He said medium- and longer-term macroeconomic outcomes needed to be considered in terms of "regimes" instead of a single long-run destination towards which the economy was headed.

This had dire consequences for the greenback. At about 17:20 BST, the dollar was down 0.36% to €0.8876, and also lower on most other crosses. The dollar-spot index fell 0.29% to $94.291.

Lawler, of CMC Markets, said supposed-hawk Bullard's words put the dollar under the cosh.

"Should other Fed officials start to match Bullard's dovish tone, it would mark a departure from a series of public comments in May suggesting June and July were 'live meetings'."