Flash crash ‘triggered by algorithm’ drags pound lower

Flash crash 'triggered by algorithm' drags pound lower

The pound has plunged in Asian trade, hitting a new 31-year low against the US dollar as traders speculate about a possible trigger.

It fell more than 6% at one point to $1.1841 before recovering to $1.23, still 1.5% down from late US levels.

Analysts say an algorithm reacting to a news report was the possible trigger for the sudden tumble.

The pound has seen renewed pressure since the UK government said Brexit talks would start next March.

“It’s difficult to know exactly what triggered it,” Angus Nicholson, market analyst with IG in Melbourne, told the BBC.

The sharp drop came after the Financial Times newspaper published a story online about French President Francois Hollande demanding “tough Brexit negotiations”.

Chain reaction

“Possibly a keyword or newsflow-focused algorithm started the selling in the pound based on that article, and other algorithms may have seen the volume and momentum coming into the pound at what is normally a relatively low volume time,” Mr Nicholson said.

“And that may have brought in other algorithms which compounded the selling creating a feedback loop that resulted in a flash crash.”

However, traders remain nervous about the fallout from the UK’s talks with the EU over leaving the bloc.

Last Sunday, the Prime Minister Theresa May said she would trigger Article 50, the clause needed to start the exit process, by the end of March 2017.

That means the UK is likely to leave the EU by mid-2019.

It was the first time that a concrete timetable had been announced.

The currency has fallen on worries that the UK will be prepared to leave the EU single market as part of the Brexit process so that it can impose controls on immigration, the option referred to as the “hard Brexit”.

The UK and EU would then have to apply tariffs and other trade restrictions on each other.

source: bbc.com

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