Sterling suddenly took a nosedive against the US Dollar this morning, falling a whopping six percent at one point, to a low of $1.1841, then recovered. The sudden nature of Sterling’s fall is not exactly usual market behaviour and is therefore being investigated by the Bank of England.
“Sterling's flash crash is the perfect example of the interconnectivity of political, economic and public sentiment with financial markets and the profound effect on currency markets, in particular. Events such as this add to the ongoing uncertainty around the UK’s financial and economic performance, fuel public concerns about Brexit and continue to feed the debate about the fate of Sterling and the UK’s currency strength against its major trading partners, the Euro and US Dollar,” comments Gavin Herridge, Managing Director at currency experts, Halo Financial.
Market analysts suspect that the crash was as a result of a computer algorithm picking up on an article in the Financial Times, which talked about the French President, Francois Hollande, insisting on strong Brexit negotiations. Other market commentators believe that considerable negative social media sentiment and negative posts on Brexit could have had an effect.
Whether the sudden fall in Sterling strength was as a result of the sheer volume of negative discussion and commentary on Brexit and the UK’s negotiations with the EU, or a “fat finger” trading error, it just goes to show how quickly markets can move and how easily influenced they are by what’s happening around them.
Market experts all agree that uncertainty and volatility could be here to stay for Sterling, at least while the UK’s Brexit negotiations with the EU are taking place. Each country involved in the negotiations has its own political, economic and financial agenda, all of which will have an impact on the sentiment that is driving world markets.
“The initial uncertainty about what would be the outcome of the referendum vote, followed by a lack of clarity on timescales in the initial aftermath of the Leave decision, has weighed heavily on Sterling, keeping the currency in a difficult and weakened position against its peers,” comments Herridge.
“This sustained uncertainty creates an uneasy feeling that acts like a ripple effect and is likely to have a number of knock-on effects across a variety of markets, most notably international property. The shock of the Pound’s sudden fall may make some potential property buyers wary and even put them off, but we would urge both private individuals and businesses to remain calm and not let this accidental occurrence create unnecessary fear or panic.”
He continues, “If you are currently in the process of buying a property abroad, it’s also worth consulting a currency specialist, getting legal advice and speaking to a financial advisor, to ensure you are protected against sudden shocks of this nature.”
“In the current uncertain economic and political climate, businesses who have not considered a Sterling currency strategy should look at their exposure and take steps to protect their profit, given the volatile state of the currency markets and the dramatic effects these can have on a business in real terms.”
About Halo Financial
Halo Financial is a leading UK foreign exchange brokerage, offering a comprehensive range of services to individuals and businesses since its inception in 2005. The business prides itself on offering a flexible and personalised approach for each of its clients, simplifying the seemingly complex foreign exchange market to maximise savings in currency transactions and make money go further.
Halo Financial specialises in managing currency risk by offering hedging strategies and best execution for B2B and B2C clients with vertical expertise in numerous industry sectors such as international trade, financial, education, migration and overseas property. Staffed by qualified technical analysts, the company is authorised by the Financial Conduct Authority and HM Revenue and Customs.
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