World Economy

Sterling’s 6% Flash Crash Baffles Traders

Friday’s tumble might still have a larger impact.
Friday’s tumble might still have a larger impact.

The beleaguered British pound has plummeted briefly to a fresh 31-year low amid intensifying concerns about Britain’s exit from the European Union.

The pound tumbled nearly 6% in early Asian trading Friday, falling as low as $1.1789, according to FactSet data, AP reported.

The British currency, which had been trading at around $1.26 the day before, recovered minutes later.

Market watchers were baffled by the pound’s “flash crash.”

Some attributed it to a trader’s “fat finger” mistake or a rogue automated trading algorithm.

Naeem Aslam, chief market analyst of Think Markets, said the fall was an indicator of how low the currency could still go.

 “What we had was insane—call it flash crash but the move of this magnitude really tells you how low the currency can really go,” said Naeem Aslam in a note, according to Bloomberg.

“Hard Brexit has haunted the sterling,” he added.

The incident happened in early hours when there is very little pound trading going on.

This means that any sell-off will have a bigger impact than during busy hours.

Sterling recovered ground immediately after the flash crash, but Friday’s tumble might still have a larger impact.

“In this deeply interconnected and highly automated world of trading, a move as sharp as what we saw this morning on a product as widely traded as the sterling will almost certainly lead to unintended consequences for many,” Nicholas Teo of KGI Securities in Singapore told the BBC.

Another theory on the mysterious flash crash include the publication of a report by the Financial Times on French President Francois Hollande in which he said the UK would have to “suffer” for its decision to leave the EU to ensure unity within the bloc.

Sterling has been under pressure all week, falling on worries that the UK will be prepared to leave the EU single market as part of the Brexit process so that it can impose controls on immigration.

Paul Sirani, chief market analyst at Xtrade, said:  “While (British Prime Minister Theresa) May has important negotiations to make, traders will be most focused on how well she drags her cabinet colleagues into a coherent vision and reality of a competitive post-Brexit UK with high-quality free-trade agreements.”


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