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Business

Flash crash could be ill omen for sterling

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Business

Flash crash could be ill omen for sterling

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COMING UP:Flash crash could be ill omen for sterling

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00:00:00
>> Sterling on Friday recovered from an overnight crash in its value against the dollar. Some are dismissing the slump as a freak event, maybe even an accident. But it could also be a vision of the currency's future. In London, I'm Reuters Breakingviews columnist, Swaha Pattanaik. There were several technical market fighters, which have a lot to do with an initial, and perhaps unknown, catalyst.
00:00:22
Still, people are speculating it could have been what they call a fat finger trade, all sorts of computer driven trading. And underlying all of that, very, very thin liquidity in Asia. There's also some blame being pinned on Francois Hollande, who came out with a line that the EU needs to be very, very firm with Britain on Brexit.
00:00:39
But that's sort of a timing issue, because the fall started before his comments were published, so it's not necessarily clear whether the trigger was that. Could have been the 2010 U.S. stock market crash, which wiped something like a trillion off the value of US stocks. And, as more recently, the Bund crash which was a very, very sharp jump in Bund deals, German bond deals.
00:01:01
This is something similar, however, there's a notable difference. Sterling is expected to go down and revisit the lows it set in flash crash, unlike in either the case of the Bund or the US stock market. One of the problems that Sterling has is it was falling, and with very good reason, before this sort of untoward flash crash happened over night.
00:01:21
Brexit means that people are wondering what sort of economic outlook there is for the UK. There is an option of, perhaps, a very nice trade agreement with the EU, which would be good for the economy. And one that would be, perhaps, less good for the British economy, which is restrictions on access to the single market.
00:01:39
Prime Minister Theresa May's comments on immigration, and how much reduction she wants in the numbers coming into Britain, suggest we're going for a harder trade outcome for the UK economy. That's probably what's worrying traders most.>>
APPLAUSE