Date
24 January 2017
In case of Brexit, the US Dollar Index may gain on the pound's weakness, but the upside could be capped by demand for yen and Swiss francs as investors seek refuge from uncertainties. Photo: Internet
In case of Brexit, the US Dollar Index may gain on the pound's weakness, but the upside could be capped by demand for yen and Swiss francs as investors seek refuge from uncertainties. Photo: Internet

What may cap dollar’s gain on Brexit jitters?

In the latest survey by polling agency ORB International for The Independent, 55 percent believe the United Kingdom should leave the European Union, marking a 10-point lead over the “stay” camp.

The dramatic swing in sentiment has rattled the financial markets and sent numerous stocks markets tumbling.

The Hang Seng Index lost 529 points on Monday while the Nikkei Average dropped 3.5 percent. US and European stocks also declined.

If “Brexit” wins in the referendum, and the pound continues its drastic fall as expected, it will create significant upward pressure on the US Dollar Index (DXY), given that the pound carries an 11.9 percent weighting in the index.

Nevertheless, it is noteworthy that as investors look to the yen and the Swiss franc as safe havens, demand for these two currencies, which together carry a 17.2 percent weighting, could increase, offsetting the pound’s weakness.

Indeed, over the past few days, the strength of the yen and the Swiss franc has been quite noticeable, while the DXY has been largely range-bound.

The DXY measures the value of the US dollar against a basket of six currencies, with the euro carrying the heaviest weighting of 57.6 percent.

This article appeared in the Hong Kong Economic Journal on June 14.

Translation by Raymond Tsoi

[Chinese version 中文版]

– Contact us at [email protected]

CG

Columnist at the Hong Kong Economic Journal

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