TOKYO (REUTERS, BLOOMBERG) - The pound plunged sharply to its lowest in more than three decades against the US dollar on Friday (Oct 7), in thin conditions in early Asian trading as a break of key technical support levels triggered a wave of stop-loss orders.
The pound suddenly dropped as low as US$1.1378 on some trading platforms. But it immediately pared its losses, suggesting market participants rushed to buy it back. It last traded down 1.3 per cent at US$1.2454.
Against the Singapore dollar, the pound sank 4.4 per cent to a new all-time low of 1.6661 per Singdollar at 7:13am from its close on Thursday of 1.7435. It recovered half its lost ground by 11:30am, trading down 2.2 per cent at 1.7052.
Against the euro, sterling dropped as much as 6.5 per cent and was down 2.1 per cent at 90.23 pence per euro.
Sterling's slide "looks like it was an algorithm-driven flash crash," said Angus Nicholson, a markets analyst in Melbourne at IG Ltd. "Given low volumes in the Asian session, it would have forced other algorithms to join in and magnify the fall."
"Low liquidity amplified the move. People suspect a 'fat finger' triggered stop-loss orders," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The pound has been wallowing at its lowest levels since the mid-1980s this week, on track for a weekly loss of 4.2 per cent, as investors feared the impact of Britain's pending exit from the European Union.
"The move coincided with a Financial Tmes story about French President Hollande demanding tough Brexit negotiations. The move was exacerbated once stops were tripped below a key level of US$1.2600 in very thin trading before the US payrolls," said Su-Lin Ong, senior economist at RBC Capital Markets.
The Financial Times reported that Hollande said the UK must suffer the consequences of leaving the EU in order to save the trading bloc from an existential crisis. The French president, speaking in Paris at a dinner attended by EU officials, urged the bloc to lead tough negotiations with Britain to avoid contagion and protect the fundamental principles of the single market, the report said.
The pound also came under renewed pressure this week against a backdrop of anxiety about a "hard" exit by Britain from the EU and about Prime Minister Theresa May's comments on the impact of loose monetary policy, which some saw as a thinly veiled attack on the Bank of England.
Leaving the EU has been the main topic at the ruling Conservative Party's annual conference this week, where Ms May seemingly moved closer toward a so-called hard Brexit that would restrict access to the EU's single market so that the government can control immigration. Sterling has tumbled more than 4 per cent since May's speech on Sunday, accelerating losses as she was said to take the view that financial services would get no special favors in EU exit talks.
Sterling has been "on a precipice since Sunday, since Theresa May and the March Brexit negotiations," said Sean Callow, senior currency strategist at Westpac, adding,"I think we've underestimated how many people had money positions for a very wishy-washy Brexit, or even none."
Other currencies traded in more familiar ranges ahead of the US nonfarm payrolls report later in the session, which could cement expectations for an interest rate hike by Federal Reserve this year.
A strong report would increase bets that the US central bank is gearing up for a hike in December.
The employment report is expected to show US nonfarm payrolls rose by 175,000 jobs in the month, according to the median estimate of 100 economists polled by Reuters.
With additional information from the Straits Times