FX round-up: Sterling cautious as Farage quits and markets mull Article 50

Sterling turned in cautious performances on major crosses as investors continued to mull the financial and economic implications of the non-binding Brexit referendum, while UK politics remained in a muddle.

At 17:04 BST, sterling was up 0.22% to $1.3296, and up 0.1% to €1.1930. Sterling lost traction against most commodity currencies.

The dollar spot index was down 0.12% to $95.538. US markets are closed for the nation's Independence Day holiday.

JC Rathbone Associates Ltd noted that after a brief post-Brexit rally to $1.3900, sterling had succumbed to "the dreaded 'L-shaped' recovery.

Colin Dewar, head of currency dealing, Hargreaves Lansdown Currency Service, described sterling's turns today as mixed thanks to investors taking stock.

"The latest construction activity figures showed a heavy contraction during June as firms held projects back ahead of the vote," said Dewar.

"The question is whether we will see a bounce next month or whether there will be further contractions to come," he added.

Meantime, Brexit agitator Nigel Farage today quit as leader of the UK Independence Party. The Conservatives have yet to appoint a successor to David Cameron amid heated internal wrangling, while Labour leader Jeremy Corbyn remains besieged by fellow MPs who want him to quit.

Against this backcloth, UK chancellor George Osborne's pledge to cut corporation tax to 15% aims to curb any enthusiasm businesses may have for brexit-ing themselves from the UK.

Chris Beauchamp, senior market analyst at IG, commented that, the "resilience of the pound today despite the dire construction purchasing-managers' index this morning will no doubt reinforce the view that the currency is due for a bounce, at least in the short term, even if we can expect the UK currency to continue to weaken over the rest of the second half.

"Given that so much of the data was collected pre-referendum, today's number, like so much data this week, may well be heavily discounted, if not ignored entirely."

Overall, however, the market remains perplexed and befuddled on whether or not Britain will activate Article 50 of the Lisbon Treaty, enacting a process that will see it leave the European Union.

FXTM Research Analyst Lukman Otunuga said that, if invoked, Article 50 could act as a catalyst to sending the sterling lower.

"From a technical standpoint, a decisive break down below $1.3200 on the GBPUSD could open a path towards $1.3100 and potentially lower," said Otunuga.

Meantime, the dollar was down against most major crosses, with losses most pronounced against commodity currencies as gold, copper and silver all made gains today.

"Although US data continues to display signs of improvement, the recent Brexit scenario which has heightened global risk, should keep the cautious central bank on the fence," said Otunuga.

The Aussie recovered from early weakness to gain 0.56% to 0.754 per US dollar following inconclusive elections over the weekend that left both Prime Minister Malcolm Turnbull’s Liberal-National coalition and the opposition Labor party short of a majority in the country´s House of Representatives.

That saw S&P weigh in to say Australia´s much-vaunted AAA long-term debt rating might be at risk if political gridlock over the budget continues.

Improvements in the country´s fiscal position were needed to compensate for Austrlia´s "high vulnerability to shifts in offshore financial market sentiment”.