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US dollar steps back, sterling firms ahead of Brexit vote
[TOKYO] The dollar erased its early modest gains on Wednesday while sterling stood tall on the eve of Britain's referendum on whether to remain in the European Union.
Recent opinion polls have mostly shown a shift towards keeping Britain in the EU, but there are some signs that momentum has stalled for the 'In' camp and the race still looks too close to call.
The greenback briefly popped back above 105.00 yen for the first time in nearly a week late on Tuesday, but last stood at 104.55, down 0.2 per cent.
"Some banks are not in the market today, or they are just in for commercial orders, ahead of the vote, so dollar/yen will be rangebound for a while," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "Although the odds seem to favour 'Bremain,' it's still 50/50, and no one wants to be caught short either way," he said.
The dollar had risen earlier in the session, after Federal Reserve Chair Janet Yellen held the line on Tuesday of "gradual increases" in US rates.
In her testimony before Congress, Ms Yellen expressed general optimism about the US economy and said gradual hikes in the federal funds rate were likely to be needed. However, she stressed the economic outlook was uncertain and that monetary policy was "by no means on a preset course".
"At the margin Ms Yellen appeared to be a bit more cautious than before, but overall our assessment of the Fed remains unchanged," said Rodrigo Catril, currency strategist at National Australia Bank.
"We still expect two Fed hikes this year, albeit with clear risk we get no more than one."
The euro added 0.2 per cent to US$1.1266, moving back to take aim at a two-week peak of US$1.1383 set on Monday.
That helped push down the dollar index, which tracks the US unit against a basket of six rivals. It inched 0.1 per cent lower to 93.916, but remained above a two-week trough of 93.425 set overnight.
Ms Yellen also highlighted the risks of Brexit, noting it could have "significant economic repercussions."
In a similarly guarded tone, European Central Bank (ECB) President Mario Draghi said the ECB stood ready to act with all instruments if necessary.
Mr Draghi's comments came as Swiss investment bank UBS warned its clients it may fail to execute some orders on its electronic trading platform should the referendum affect liquidity or cause extreme volatility.
Sterling has seesawed in recent weeks with the June 23 vote looming large. A short-covering rally brought it near a six-month high of US$1.4788 on Tuesday, and it last stood at US$1.4683, up 0.2 per cent.
Commodity currencies also took a step back and then rebounded, with the Australian dollar last up 0.3 per cent at US$0.7465, moving back toward a seven-week high of US$0.7513 touched on Tuesday.