UK pound falls on Asian markets, reach lowest $1.1841 after Brexit vote
A deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for the pound say experts..
The British pound suffered badly on Asian markets on Friday nosediving as much as 6% to $1.1841 at one stage, its biggest ever falls, after the Brexit vote.
However, it recovered later and is currently trading at at $1.2388, 2% lower than previous day.
Automated trading has led to the mayhem, according to experts. It still not not clear what has led to the issue, though experts find faults with the sudden reactions of automated trading systems to news reports on Pound.
The Bank of England confirmed it will "looking into" the sudden sell off. The BBC reported that it was first noticed when in the online version of Financial Times ran a story on demands made by French President Francois Hollande for "tough Brexit negotiations".
"It's difficult to know exactly what triggered it," Angus Nicholson, a market analyst with IG was quoted as asaying to BBC. Since, the UK's Brexit vote pound has remained volatile.
A machine error by one of the computers might have triggered the crisis says an expert. However, the incident occurred at a time when there was hardly any pound trading going on. It poses several challenges as a sell-off during peak hours will cause massive damages.
Experts blame the settings of trading algorithms ( know as algos) a software designed to trade faster than humans and automatically.
"These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for the pound," Kathleen Brooks, research director at City Index, was reported saying to BBC.
"Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure," he added.
Exerts do not rule of a similar sell off of pound in the near future. "This highlights the drawback of machines making trading decisions, however, it is the reality, and it is only getting more popular. Thus, another flash crash is possible," warned the expert.