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Currencies

Yuan trades little changed, the pound extends its slide in run-up to next week’s Brexit vote

PUBLISHED : Tuesday, 14 June, 2016, 12:37pm
UPDATED : Tuesday, 14 June, 2016, 12:37pm

The Chinese yuan was little changed on Tuesday morning while the British pound continue to fall amid polls showing the exit camp has a sizeable lead ahead of Britain’s national referendum next week on whether to remain in the European Union.

Offshore yuan in Hong Kong was trading at 6.5954 to the US dollar at 10.35am on Tuesday, unchanged from Monday close. The currency on Monday fell to a four-month low of 6.6079, its lowest since February 4 when it was quoted at 6.6185.

Traders said investors are still haunted by uncertainties this week, including the Morgan Stanley Capital International MSCI announcement due Wednesday morning on whether to include China’s domestically traded shares into its emerging-markets indices.

An inclusion of A shares in the MSCI index could benefit the yuan, as it would mean many fund manager who oversee passive-tracking funds would need to buy them. But if MSCI decides against inclusion of A shares, more currency outflows from China may result, as the yuan could come under pressure.

The People’s Bank of China set the mid point of the yuan against the US dollar at 6.5791 on Tuesday morning, stronger by 14 basis points, or 0.02 per cent.

The onshore yuan in Shanghai traded at 6.5860 at 10.35am, down 0.06 per cent from Monday close.

The British pound extended its loss on Tuesday, trading at 1.4184 against the US dollar, down 0.6 per cent. The currency fell 1.81 per cent last week.

“While markets were spooked by recent polls indicating more UK voters leaning towards leaving the European Union (EU) at the Brexit referendum on June 23, the betting markets were, on the other hand, placing their money on a stay outcome,” the DBS report said.

“The markets are also wary that the Fed, Bank of Japan (BOJ) and Bank of England

(BOE) are holding their monetary policy meetings this week,” the report said.

DBS report said while no one expects a US rate hike this week, many would be interested to see how much Brexit risks have dampened Fed Chairwoman Janet Yellen’s optimism.

“There is also the risk that the dot plot may reaffirm the rate hike biases set before the latest disappointing US nonfarm payrolls data,” the DBS report added.

Amid the volatile currency market, investors were looking towards precious metals. In electronic trading in New York on Monday, the front month contract for gold rose 0.9 per cent to US $1,286.90 an ounce, bringing its rise to four straight days.