This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2016/10/08/business/dealbook/britain-pound-currency-flash-crash.html

The article has changed 5 times. There is an RSS feed of changes available.

Version 1 Version 2
Pound Drops Sharply in Asian Trading Amid Brexit Fears Pound Drops Sharply in Asian Trading Amid ‘Brexit’ Fears
(about 4 hours later)
HONG KONG — The British pound plunged suddenly in early trading on Friday before just as quickly making back most of its losses, puzzling currency trading experts but underscoring investor skittishness over Britain’s prospects as it moves to break away from the European Union. LONDON — The British pound plunged suddenly in the early hours of trading in Asia on Friday before just as quickly making back most of its losses, puzzling currency trading experts but underscoring investor skittishness over Britain’s prospects as it moves to break away from the European Union.
The pound remained about 1.2 percent weaker compared with the dollar before the beginning of European trading on Friday. While a fall of that degree is notable for a currency, it paled in comparison to the pound’s unexpected drop of more than 6 percent several hours before, during Asian trading, over a span of minutes. The pound remained about 2.1 percent weaker compared with the dollar in early afternoon trading in London on Friday. While a fall of that degree is notable for a currency, it paled in comparison to the pound’s unexpected drop of more than 6 percent over a span of minutes in the thinly traded currency markets early in the Asian trading day.
A sudden drop like that is often called a flash crash, and is sometimes caused by computer-driven automated trades or a simple misplaced keystroke — a fat-finger error, as it is known on trading floors. In the case of the drop in Asia for the pound, also known as sterling, experts said they were hard-pressed to identify a single cause. The Bank of England said on Friday that it was “looking into” the swift decline in the currency. But the central bank may have little room to act, as foreign currency trading is lightly regulated.
But over all, they pointed to a general area of unease: Britain’s vote in a referendum in June to leave the European Union, a move known as Brexit. A sudden drop like that of Friday is often called a flash crash, and it is sometimes caused by automated trades or a simple misplaced keystroke — a fat-finger error, as it is known on trading floors. In the case of the drop in Asia for the pound, also known as sterling, experts said they were hard-pressed to identify a single cause.
“The depth of the collapse and speed of the recovery certainly argue for algorithmic trading being the cause, perhaps exacerbated by trader error,” said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners. “Nonetheless, fundamentals have certainly been driving sterling lower.” But over all, they pointed to a general area of unease: Britain’s vote in a referendum in June to leave the European Union, a move known as “Brexit.”
As Britain’s new leaders have pledged to move forward with the process, investors have grown increasingly nervous. “The depth of the collapse and speed of the recovery certainly argue for algorithmic trading being the cause, perhaps exacerbated by trader error,” said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners.
“Sterling has been under persistent pressure for a month,” said Alvin T. Tan at Société Générale, the French bank. “Nonetheless,” he added, “fundamentals have certainly been driving sterling lower.”
He cited the pledge by Britain’s new prime minister, Theresa May, to begin the process of leaving the European Union. That could lead to what some call a “hard Brexit,” or a swift severing of ties that could leave uncertainty in how Britain will trade with Europe. The pound, when compared with the dollar, is off nearly 17 percent since the referendum on June 23 and is trading at its lowest levels since the mid-1980s.
Experts also cited an article in The Financial Times that quoted President François Hollande of France telling European Union officials that they should take a tough negotiating stance with Britain. “Sterling has been under persistent pressure for a month,” said Alvin T. Tan of Société Générale, the French bank.
Investors have expressed their skittishness by selling investments denominated in pounds, driving the currency down 16 percent versus the dollar so far this year. The pound has been under significant pressure this week after Theresa May, the British prime minister, said on Sunday at the start of the governing Conservative Party’s annual convention that Britain would begin formal negotiations to exit the bloc by the end of March.
Experts identified other exacerbating reasons. Trading in Asia has been lighter than usual, as China nears the end of a holiday week and Hong Kong begins its own holiday. Even under normal circumstances, trading in currencies is often lighter in Asia than in Europe or the United States. Mrs. May and other Conservative leaders have signaled that Britain could be headed for a so-called hard Brexit, with few concessions on trade and migration.
Other reasons for thin trading — which often leads to exaggerating moves — include caution before a monthly report on jobs growth in the United States expected later on Friday. A top priority in negotiations over the withdrawal will be Britain’s power to control immigration and reject European Union rules that allow people to move and settle across national frontiers. That stance has irked some business leaders who fear a loss of tariff-free access to Europe’s single market.
Investors have grown increasingly nervous.
“Many investors, it seems, were awaiting clarity from the government about what type of Brexit it would prioritize, and many presumably were hoping for a softer Brexit that minimized the longer-term economic damage,” Paul Meggyesi, a J.P. Morgan research analyst, said in a note to clients on Friday.
“But such hopes were dashed at the Conservative Party conference last weekend, and it’s not unreasonable to attribute the subsequent 4 percent drop in the pound to some of these investors starting to reassess their positions,” he added.
On Friday, experts also cited a report by The Financial Times on a speech given by President François Hollande of France on Thursday evening, in which he said that European Union officials should take a tough negotiating stance with Britain.
Analysts also identified other factors. Trading in Asia has been lighter than usual, as China nears the end of a holiday week and Hong Kong begins its own holiday. Even under normal circumstances, trading in currencies is often lighter in Asia than in Europe or the United States.
Other reasons for thin trading — which often leads to moves being exaggerated — included caution before a monthly report on jobs growth in the United States that was released later on Friday.