Blame game heats up as sterling endures one of its worst days ever
LONDON: As if it wasn’t shaky enough, the British pound endured one of its biggest falls ever yesterday with some in the markets blaming trading robots or a fat-fingered typo for sending the currency down a precipitous 6 percent in just a couple of minutes.
For one of the world’s major currencies, which is held as a reserve of value by countries around the world, that’s a huge move, matched only by its fall in the wake of dramatic events like the June vote to leave the EU.
Early yesterday during Asian hours, the pound tumbled from $1.2600 to as low as $1.1789 in the space of two minutes, according to financial data provider FactSet. It later recovered somewhat to trade at $1.2365, but still that’s a level the currency hasn’t seen since 1985.
The crash occurred during a “twilight period” in the markets – after the close in the US and just as Asian traders were starting their day. That means the volume of trading was likely lower than usual and relatively smaller trades can have an outsize impact.
Various reasons have been cited for the drama involving what is one of the world’s oldest currencies. Some say a trader made a “fat finger” mistake typing in a market order.
Others say it could have been an automated trading algorithm that makes decisions based on news websites or social media, or comments by France’s president, Francois Hollande, who said Britain should pay for its decision to leave the EU.
Or some sort of combination of them all. The Bank of England is investigating.
The pound is already in the doldrums, posting a series of new 31-year lows against the dollar this week as traders fret over the uncertainty surrounding Brexit. Though the British economy has held up better than expected in the immediate aftermath of the “leave” vote, there are great longerterm uncertainties surrounding the British economy.
The main worry in the currency markets centre on what a clean British break from the EU, which is looking like the preferred option of new prime minister Theresa May, would look like.
May said this week she would invoke by the end of March the so-called Article 50 of the EU treaty, the mechanism by which two years of talks on Britain’s exit officially commence.
She also appeared to signal that her government would prioritise controls on immigration over access to the European single market, an approach informally called a “hard Brexit.” – ANA-AP