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October 2016

Pound plummets overnight

Published: Friday 07 October 2016

  • Pound plummets overnight
  • Markets unprepared for drop
  • US employment data today's focus
The Pound plummeted lower around midnight, hitting a new 31-year low against the US dollar and fell more than 6% at one point to $1.1841 before recovering to $1.24. It is rumoured some institutions saw orders triggered at 1.13.

Coined as a 'fat finger trade' analysts say an algorithm reacting to a news report was the possible trigger for the sudden tumble. The sharp drop came after the Financial Times newspaper published a story online about French President Hollande demanding "tough Brexit negotiations".

This caused a chain reaction and some analysts are saying a possible keyword or news-flow focused algorithm triggered the mass selling of the Pound. Other algorithms may have seen the volume and momentum coming into the Pound at what is normally a relatively quiet time for the FX market, this compounded the selling and created a feedback loop that resulted in a flash sale of the Pound.

Unlike the aftermath of the Brexit vote in June, markets were not prepared for any sudden moves this Friday. 
What could follow next is a period of reconciliation and accountability for many brokers and their clients' accounts. 

Non-farm payroll report from US will be the main focus today. Economists expect NFP to show 173k growth in September with unemployment rate unchanged at 4.9%.


Man: "Can you tell where the self-help section is?"

Librarian: "No."

Man: "Why not?"

Librarian: "Well that would defeat the original purpose, wouldn't it?"

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Manufacturing production month-on-month -0.9% 0.4%
GBP 09:30 UK: Goods trade balace -11.8b -11.1b
GBP 09:30 UK: Industrial production month-on-month 0.1% 0.1%
CAD 13:30 Canada: Employment change 26.2k 0.1%
CAD 13:30 Canada: Unemployment rate 7.0% 7.0%
USD 13:30 US: Average hourly earnings month-on-month 0.1% 0.2%
USD 13:30 US: Non-farm employment change 151k 171k
USD 13:30 US: Unemployment rate 4.9% 4.9%

Daily Currency Analysis by Michael Hart

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