Pound's 6% Flash Crash
|Sterling collapsed by 6% in less than 5 minutes at 19:07 Eastern Time (0:07 London) on a combination of renewed reports of Hard Brexit demand by French president Francois Hollande and thin liquidity in early Friday Asia hours ahead of the much anticipated US jobs report. The Financial Times reported that Hollande said at a dinner in Paris that the EU should approach the UK's decision to leave the EU with “firmness”, adding that there “…must be a threat, there must be a risk, there must be a price”. Ashraf's interview with CNBC on GBP's plunge.
Hollande's statements followed remarks by German Chancellor Angela Merkel in urging European business leaders to be firm during Brexit negotiations with British counterparts so as not to compromise single market principles of freedom of movement. On the UK front, reports that PM May's Wednesday speech alluding to the negative implications of low interest rates raised speculation that she is at odds with the Bank of England's policy of ultra-low interest rates. Expectations that WhiteHall could shift away from monetary policy to looser fiscal policy escalated after her May's policy chief referred to the use of large infrastructure spending at the December Budget statement.
While we do not rule out the possibility of a human (Fat Finger) error in amplifying sterling's sharp slide, we do not consider it to be the only reason. We grew accustomed over the past 6 weeks with sterling's reaction to increasingly frequent weekend reports that EU officials would want to expedite negotiations with the UK regarding Brexit. The most recent trigger to GBP selling emerged on Sunday following PM May's decision to launch Article 50 in March. A Hard Exit would reduce the likelihood of any sweet deals to the UK, including the rising possibility that banks based in the UK would no longer retain the privilege of “passporting”, enabling them to do business in Europe.
GBPUSD fell to as low as $1.1841 from $1.2600, while one electronic trading platform reportedly recorded $1.1378. Whether $1.30 becomes the new “Hard Resistance” remains to be seen. We added a new trade following GBP's slide to the Premium Insights as we near the US jobs report.
GBP call on CNBC - June 27, 2016
GBP call on Bloomberg - July 11, 2016
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.