The yuan hit a more than five-year low against the dollar on Wednesday as the greenback firmed amid growing fears that Britain may leave the European Union and caution ahead of a US Federal Reserve policy decision later in the day.

The Chinese currency hit an intra-day low of 6.6047 per dollar in early trade, the lowest since January 2011, after the People’s Bank of China set the midpoint rate at 6.6001 per dollar prior to the market open. The fixing was also the softest since January 2011.

Spot yuan opened at 6.6020 per dollar, breaching critical support at 6.60. By midday, it had pared some losses and was changing hands at 6.5951, 0.02 per cent firmer than the previous close.

Brexit woes

Concerns that Britain may vote to leave the European Union in a referendum next week continued to rattle global financial markets and policymakers.

Chinese traders agreed that such a scenario could trigger another round of massive yuan depreciation if it causes chaos on world markets.

“The impact of Brexit on the global markets is irreversible,” said a trader at a Chinese commercial bank in Shanghai.

“My estimate is that the yuan will, at the very least, further weaken 200 or 300 pips.”

Fed policy outcome

Chances that the Fed will raise interest rates this week are considered to be virtually nil, but markets will be watching for comments on its rate outlook for the rest of the year.

MSCI decision

US index provider MSCI Inc had on Tuesday declined to add domestic Chinese stocks to one of its key benchmarks, concluding that Beijing had more work to do in liberalising capital markets and delivering a blow to Chinese policymakers hoping to broaden the appeal of their currency.

Traders said the MSCI decision did not have an immediate impact on China’s forex market.

The offshore yuan was trading 0.16 per cent softer than the onshore spot at 6.6058 per dollar.

Markets are also still awaiting the release of China’s bank lending and money supply data for May.

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