Pound's 'flash crash' triggers volatility warnings
The experts blamed the sell-off on technical issues or human error but said the event illustrated the fragility of the British economy. Photograph: (AFP)
Sterling suffered a dizzying "flash crash" against the euro and dollar on Friday in a computer-generated sell-off, sending Brexit shockwaves across markets.
In the second-largest intra-day decline, the pound plunged more than six per cent against the dollar in under ten minutes in Asian trading hours.
A spokesman for the Bank of England told AFP that they are "looking into" the cause of the flash crash.
"We are looking into what happened," he said after sterling suffered a "flash crash" in Asia trading hours -- hitting a new 31-year low point at $1.1841. The pound slumped also to a 6.5-year trough against the euro, at 94.15 pence.
Market analysts said algorithmic trading programmes apparently triggered the crash that caused the value of sterling to plummet.
"A lot of investors are still scratching their heads as to how and why it happened, whether it was a fat fingered trader in Tokyo, an algorithm scanning for any negative Brexit news, or just a big seller of the pound," said analyst Alex Edwards at trading firm UKForex.
"Whatever it was, it shows us that the pound is looking very vulnerable right now."
XTB analyst David Cheetham added that a combination of trades placed by algorithms and stop-loss orders can "exacerbate the move, which is commonly seen to retrace by a significant proportion of the decline within a matter of minutes".
Stop-loss orders are automatic orders to buy or sell an asset once it reaches a certain price level.
Approaching midday in London, the pound rowed back to $1.2368, while the euro stood at 89.99 pence.
After rebounding, the pound again fell sharply this week on fears of a so-called "hard Brexit" that would see Britain depart the single market, or tariff-free zone, and end free movement of people into the country.
The pound has hit several fresh 31-year lows against the dollar this week, after British Prime Minister Theresa May outlined a timetable at the weekend for Britain to leave the European Union by 2019.
May's comment led French President Francois Hollande to call Thursday for EU officials to use a firm hand in negotiations with Britain over its exit.
But some market-watchers said the event illustrated the fragility of the British unit since the country's shock referendum vote on June 23 to leave the European Union.
(WION with inputs from AFP)