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Bank of England to investigate sudden fall in sterling

The Bank of England (BOE) Friday asked the Bank for International Settlements (BIS) to investigate the flash crash in sterling that took place during trading on Friday.

Sterling fell to 1.15 U.S. dollars to the pound from 1.26 U.S. dollars, a 10-percent fall, early Friday during Asian trading, the largest move in the currency since June 24, the day after the Brexit vote.

1.18 U.S. dollars to the pound is the lowest level for sterling since March 1985.

The crash lasted for about four minutes, with sterling recovering to 1.23 U.S. dollars.

At the close of London trading on Friday, sterling was down 1.4 percent at 1.24 U.S. dollars to the pound.

However, a cheaper dollar-pound exchange rate did have benefits for equities with the FTSE 100, the London Stock Exchange listing of the major UK companies, finishing the day 44 points higher at 7,044 points. Revenue for most of the FTSE 100 firms is in dollars rather than sterling.

The BOE said in a statement: "The governor of the Bank of England asked BIS's markets committee this morning to look into the events surrounding the flash crash in sterling during Asian trade. With input from the bank, the committee will review the lessons from this, and other recent episodes of flash events in FX markets at its next meeting."

Local media reported that experts believed automated trading programs may have been responsible for the sudden and sharp fall, among other causes.

Some automated programs with complicated algorithms that watch market prices, movements and volumes of trading also monitor media outputs.

The Financial Times (FT) newspaper reported that the crash happened almost at the same time as it published a story about French President Francois Hollande noting there might be a "hard Brexit" for Britain as it left the EU.

The FT also reported that the flash fall may have been due to human error, or to stop-loss orders, automatic instructions to sell once a certain level is reached.

Friday is also the day in the trading cycle when some foreign exchange options expire, which can cause unpredictable movements in exchange rates.

[Source: Xinhua, London, 07Oct16]

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small logoThis document has been published on 10Oct16 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.