Flash crash scythes 6% off pound

Latest Update: October 7, 2016 | 167 Views

The pound suffered a “flash crash” in Asia Friday on a computer-generated sell-off in the beleaguered currency, as tough talk from French President Francois Hollande underscored the perils ahead for Brexit-bound Britain.

The magnitude of the six percent plunge showed there was likely further volatility ahead for sterling, which has been hammered this week after the British prime minister set out a timetable to leave the European Union.

In early trade the pound fell off a cliff to hit a 31-year low of $1.1841 before immediately rebounding to around $1.2450.

The euro also hit a seven-year-high 94.15 pence, before easing slightly, as minutes from the European Central Bank indicated it is unlikely to trim its stimulus any time soon.

Speaking Thursday, Hollande said the EU should take a tough line with London during exit talks in order to prevent the break-up of the bloc.

“There must be a threat, there must be a risk, there must be a price, otherwise we will be in negotiations that will not end well and, inevitably, will have economic and human consequences,” he said.

“Britain has decided on a Brexit, I believe even a hard Brexit. Well, we must go all the way with Britain’s willingness to leave the European Union.

“We must have this firmness”

IG Markets’ analyst Angus Nicholson said it “looks like it was an algorithm-driven flash crash” driven by the comments from Hollande. “Given low volumes in the Asian session, it would have forced other algorithms to join in and magnify the fall”.

And Jeffrey Halley, senior market analyst at OANDA, added: “Following comments this morning from … Hollande demanding ‘tough’ Brexit negotiations, GBPUSD finally managed to break $1.26 support.

“What followed next was nothing short of astounding.”

British Prime Minister Theresa May outlined a timetable at the weekend for Britain to leave the European Union by 2019, sending the pound plunging against its major rivals throughout the week.

It is now down around 14 percent against the dollar since the EU exit vote, though it is still well off its record low of $1.05 seen in early 1985.



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