British Pound Edge Up Ahead of Key Brexit Vote

Investing.com - The British pound was in focus and traded slightly higher against the U.S. dollar on Tuesday in Asia ahead of a vote on U.K. Prime Minister Theresa May’s Brexit deal.

The U.K. parliament is expected to vote down May’s Brexit plan later in the day. While the defeat is widely anticipated by the market, it could still trigger a volatile knee-jerk market reaction if May loses the vote by a wide margin, analysts said. As the deal hammered out between May's government and the EU is the only compromise on the table, rejecting it would raise the risk of the U.K. leaving without a deal. However, May warned on Monday that it might also lead to Brexit not happening at all.

"Losing by 100 or more votes is a major defeat but there's some talk that she could lose by 200 votes. A major loss will lead to a knee jerk decline in GBP that could take GBP/USD below 1.25 and EUR/GBP above 91 cents," said Kathy Lien, managing director of currency strategy at BK Asset Management in a note.

The GBP/USD pair last traded at 1.2897 by 12:16 AM ET (05:16 GMT), up 0.3%.

Meanwhile, the USD/CNY pair was little changed at 6.7684 after Beijing vowed tax cuts on a larger scale to help support its slowing economy.

Separately, the People's Bank of China's (PBOC) Deputy Governor Zhu Hexin said on Tuesday that he is confident that the PBOC could keep the yuan stable despite cuts in banks' reserve requirement ratio (RRR).

Reuters reported that the PBOC cut the RRR today as the second round of a cut already announced earlier.

The central bank set the yuan reference rate at 6.7542 today vs the previous day's fix of 6.7560.

On Monday, data showed China’s exports in December unexpectedly shrank the most in two years, putting Chinese equities under pressure.

The U.S. dollar index that tracks the greenback against a basket of other currencies was flat at 95.183.

"There is a strong dislike for the dollar given Fed expectations, but at the same time there is not a compelling replacement," said Sim Moh Siong, currency strategist at Bank of Singapore. "Over the next 6-12 months, the dollar should trend lower."

Federal Chairman Jerome Powell and several other officials reiterated last week the U.S. central bank could afford to be patient on monetary policy given that inflation remains stable.

Elsewhere, the AUD/USD pair and the NZD/USD pair both gained 0.3%.

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