Sterling struggled to find direction today as the immediate risks around Brexit were pushed back by this week's delay to the exit date and traders searched for reasons to bet on the currency one way or the other.
European Union leaders this week agreed to an up to six-month delay to Brexit, removing the immediate threat of a no-deal exit for Britain but also leaving the likelihood of months of political uncertainty in the UK.
ING analysts said they expect sterling to fall over the next few months.
This is partly because a Conservative party leadership battle could result in a eurosceptic prime minister, and also because the six-month Brexit delay was too short for the Bank of England to tighten monetary policy.
The Dutch bank predicts sterling will test levels of 88 pence per euro and $1.27.
Sterling rose marginally to $1.3069 today while against a rallying euro the pound dropped 0.3% to 86.5 pence.
With investors unsure of immediate drivers for the pound, volatility expectations have plummeted.
One-month implied volatility – a gauge of expected price swings – has tumbled to its lowest since January last year. Three and six-month measures are at similar lows.