By Patrick Graham
LONDON, Feb 23 (Reuters) - Sterling steadied on Tuesday after the launch proper of Britain's debate on leaving the European Union drove its biggest one-day fall in David Cameron's six-year premiership.
The pound sank by almost 2 percent on Monday after the defection of a handful of senior ruling Conservatives to the "Brexit" campaign, raising expectations that June's vote would at the least be very close.
After a minimal recovery in U.S. time overnight, the currency was 0.2 percent lower against the dollar but up against the euro after the single currency was weakened by some poor business sentiment numbers out of Germany.
"Where sterling goes from here is the $64,000 question," said Tobias Davis, head of corporate treasury sales at Western Union in London.
"In the immediate term, I cannot see it retracing back towards the $1.4250-$1.4300 level. But no-one wants to have to buy the dollar at these levels."
Sterling traded at $1.4130, off Monday's 7-year low of $1.4057.
Derivatives markets now show the largest bias towards sterling weakness over the next six months since at least the parliamentary elections of 2010. Options hedging allowing companies and investment funds to hedge against volatility also continued to rise, traders said. GBPVOL=
Commerzbank (DE:CBKG)'s technical analyst Karen Jones said that there was only minor psychological support for the pound at $1.40.
"Currently we suspect that intraday rallies will remain capped by 1.4230 for losses towards initially 1.3800," she said. "The 1.3502 January 2009 low remains our primary target medium term." (Editing by Raissa Kasolowsky)