Foreign Exchange Daily Market Update 07/10/2016

Fri, October 07, 2016

Pound’s Two-Minute Mystery Crash.

In the span of just two minutes at midnight, sterling had plummeted more than 6%, sending the fourth most-traded currency on the planet to the lowest level in 31 years. There was talk of France’s president pushing for a hard-line approach on Britain’s exit from the European Union, and recycled rumours of a “fat finger” trade, but nothing that would justify a drop of this magnitude.

While he may never be able to pin down the catalyst for the drop, many have agreed that the sell-off could be computer-driven traders reacting at speeds faster than any human could muster. The move today in the pound follows a flash crash in the South African rand in January and a similarly unexplained move in New Zealand’s dollar last year.

While the pound’s intraday drop of 11% after the UK’s surprise vote in June to leave the EU was bigger than today’s slump, this one was more jarring. Not only did the crash happen in just two minutes, but nobody was expecting it. The move is reminiscent to that of the reaction to the Swiss National Bank’s shock decision to abandon the franc’s cap against the Euro in January 2015, which sent the exchange rate surging more than 40%.

There was some confusion over how low the pound actually fell. The currency dropped as low as $1.1841, the weakest level since March 1985. But some banks quoted sterling at even lower levels, with at least one electronic trading platform recording a transaction as weak as $1.1378.  

The Pound fell to $1.1841 against the Dollar overnight before rebounding to $1.243. Sterling fell to 1.114 against the Euro.

Data to look out today.   

13:30 USD non farm payroll.

13:30 USD Unemployment Rate

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