UK’s sterling hammered by freak algorithm?
08 Oct 2016
A freak overnight sell-off hit the UK's sterling and crashed it by 6 per cent seconds after the Asian markets opened for trading.
The development naturally prompted a number of questions as to why it happened as currencies do not just drop 6 per cent without any reason and a lot of money switching hands (See: Pound skids to 31-year low in delayed Brexit reaction).
Some commentators say that the most likely explanation was a rogue algorithm in an automated trading system triggering a wider sell-off.
IG Markets' analyst Angus Nicholson said it "looks like it was an algorithm-driven flash crash", adding that "given low volumes in the Asian session, it would have forced other algorithms to join in and magnify the fall".
According to Societe Generale's Kit Juckes, ''Sterling was drunk yesterday, went completely mad late in the evening and probably has a terrible headache this morning.''
Other commentators rule the sell-off due to a mistake given that it was late at night in Europe and early morning in Asia. They say it might have been caused by what was known as fat finger, the tendency of tired people to hit unintended keys at their keyboard.
The pound was down to $1.18 from $1.26 almost instantly, before recovering to $1.24 against the dollar.
The story was repeated with the euro, where the pound was down to a low of €1.1031 at around 12.30 am yesterday morning.
The Bank of England said that while it had no powers of regulation over the market, governor Mark Carney had asked the Bank for International Settlements to look into the events in order to discover whether any lessons can be learned.
Meanwhile, it has been a turbulent week for the sterling in the wake of Brexit.
Investors were nervous after confirmation that the UK prime minister would trigger Article 50, the official Brexit process, by March next year and comments the market saw as the UK was keen to leave the European common market so that the government could tighten its grip on immigration.
