Daily Morning Report 22.06.2016

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 percent.

The dollar had risen earlier in the session, after Federal Reserve Chair Janet Yellen held the line on Tuesday of “gradual increases” in U.S. rates.

In her testimony before Congress, Yellen expressed general optimism about the U.S. 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”.

Elsewhere the euro added 0.2 percent to $1.1266 , moving back to take aim at a two-week peak of $1.1383 set on Monday.

That helped push down the dollar index (DXY), which tracks the U.S. unit against a basket of six rivals. It inched 0.1 percent lower to 93.916, but remained above a two-week trough of 93.425 set overnight.

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.

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 $1.4788 on Tuesday, and it last stood at $1.4683, up 0.2 percent.

Commodity currencies also took a step back and then rebounded, with the Australian dollar last up 0.3 percent at $0.7465 , moving back toward a seven-week high of $0.7513 touched on Tuesday.