Super Crash: British Pound Plunges 6% Against USD in 2 Minutes, Bank of England Launches Investigation
Since Britain voted to the leave the European Union (Brexit), its currency, the Pound Sterling has been trading poorly against the major international currencies, especially the United States Dollar (USD).
The first day after Brexit, Sterling fell about 10% against the USD. Financial analysts said then, that it was the first time the Pound had fallen against the USD at that rate since 1985. Also, world stocks slumped on a record. Billions of USD was reportedly wiped off the value of European companies.
Since this drama in June 2016, Sterling seems to have been recovering from the aftershock of Brexit, although it has not been the best.
However, on Friday morning, Oct. 7, Sterling surprisingly plunged more than 6% to the USD in just two minutes. This brought the value of 1 Pound Sterling to 1.18 USD. Before Brexit, 1 Pound Sterling was equivalent to 1.48 USD.
According to analysts, the sudden collapse of the Sterling on Friday morning made the currency hit a new 31-year low against the USD. It also made it the biggest drop since Brexit. It sparked serious chaos and confusion on the trading market, with traders speculating many theories that might have accounted for the situation.
Some said the sharp fall was a result of a news story published by the Financial Times. The Financial Times had reported on Oct. 6 that French president Francois Hollande had said Britain would have to suffer for its decision to leave the European Union to ensure unity within the Union. Before this statement, British Prime Minister Theresa May had said she would trigger Article 50, the clause needed to start the exit process, by the end of March 2017.
This Financial Times publication is believed to have triggered panic, which in turn aided the sharp fall of the currency against the USD.
Other commentators also suggested that the Sterling has been under pressure all week, falling on worries that the UK’s preparedness to leave the European Union single market as part of the Brexit process, is unwavering, so that it can impose controls on immigration.
The Bank of England since, has issued a statement saying it is investigating the reason for such a sharp currency fall, and that the country’s citizens should keep calm.
Chancellor of the Exchequer, Philip Hammond followed it up with an interview to the BBC, trying to explain the situation, saying that “some of what happened over night was driven by technical factors, as the Bank of England governor has explained this morning. Markets will go up and down – markets respond to noises. We are going to go through a period of volatility, there will be lots of commentary going on and we can expect to see markets being more turbulent over this period and we should prepare for that.”
As politicians in Westminster were still struggling to understand the situation, later in the afternoon, the currency recovered to 1.23 USD, but it was still 1.5% down to the USD.
Some analysts also later said what happened proved that the British currency can no longer be reliable for many investors. Chief market analyst of Think Markets, Naeem Aslam said the fall was an indicator of how low the Sterling could fall, as a result of the situation Britain is currently facing.
“What we had was insane, call it flash crash but the move of this magnitude really tells you how low the currency can really go,” Aslam said.
In June 2016, Britain voted in a national referendum to leave the European Union. More than 30 million ballots were cast. Some 52% of voters said they want the country to leave the Union. Since the vote, Britain’s economic power seems to have been diminishing, with many observers saying the vote to leave the Union will not help the country.
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