On a surprising day in the foreign exchange market, the British Pound sterling – one of the leading hard currency for global transactions, trembled like a third world currency. The Pound lost around 6% in two minutes in Asian trading. Though it recovered later regaining much of the lost value, Pound’’s shocking uncertainty has generated suspicion in the minds of the market participants.
During the day, Pound fell from about $1.26 to $1.18 in the space of two minutes though it recovered to $1.24.
The British currency had enough woes ever since Britain expressed its willingness to exit EU. Pound, which is included under IMF’s SDR basket has already lost 5% against the Dollar during last few months.
Why the Pound Fell steeply?
Though the British currency’s pain is deeply rooted in its Brexit decision, today’s crisis may be a combination of multiple factors.
Brexit developments, fat fingers and algorithmic trading etc are supposed to be reason for the Pounds’ intraday misery. Fat changes means unintended mistake while entering the order price by participants.
What is Flash trade?
A sound reason for the currency’s early day fall in the Asian markets is the trend of flash trading. Flash trading is automated or computer aided trading that uses algorithmic techniques for analysis and executing trade at lightning speed.
Flash trading uses highly sophisticated high-speed computer software to allow traders analyze trading elsewhere and executes trade orders very quickly.
Another chance for the volatility is flat finger or a possibility where a trader executes a different order.
Despite all possibilities, a common factor that makes Pound at vulnerabilities is the peculiar uncertainty over the British economy. Brexit has put the UK’s economy under uncertainty over the last few months. Generally, market doesn’t like uncertainty. Hence, in the currency markets, Pound has transformed from a global hard currency to a soft and erratic currency.
A country’s economic strength will be reflected in its currency and for Britain, last few month’s Brexit uncertainty has weakened its currency.