Why did the pound just get pounded?
The pound, which had jumped as much as 0.6 per cent earlier in the day to an eight-month high of $1.3048 gave up its gains and sharply tumbled as much as 0.6 per cent to $1.2890 in early afternoon trading
By pixel time sterling had trimmed its losses to trade 0.4 per cent lower at $1.2925.
“I fear that any explanation would be speculative at this time but it bares some of the hallmark of a flash crash, namely an almost instantaneous large jump in the price without a clear economic trigger behind it,” Sebastien Galy at Deutsche Bank, said.
While it is unclear what drove the sharp drop, it marked the third such event for the pound since October 7.
The mounting dominance of algorithmic trading in financial markets has in recent years increased the number of “flash events”, when there is a sudden, inexplicable and sharp rally or fall that is often just as quickly reversed, leaving shellshocked traders to speculate on the reason.
In a speech on flash crashes in 2015, Timothy Massad, then the head of the Commodity Futures Trading Commission (CFTC), told an industry conference: “The speed and complexity of our markets can give rise to problems and create greater damage than when our markets were less sophisticated.”
The move also came as the US dollar rebounded on Thursday, a day after it had declined to its lowest level since the election. The dollar index, a gauge of the buck against a basket of peers, was up 0.5 per cent at pixel time.