If there’s something the Flash Crash of the pound showed us a week ago is that since the Brexit referendum the pound is balancing on a tautly pulled string where anything might happen. Here’s a quick look at what happened and the pound’s recent performance. • It started with the UK’s vote to leave the European Union on 23rd of June. Investors reacted immediately with markets from Tokyo to New York experiencing on their worst trading days since the financial crisis of 2008 • By the close of day $2 trillion had been wiped from the global exchanges – the biggest single-day drop in history. • The sterling bore the brunt of it plunging to a 31-year low, dropping from 1.57 to 1.3684, losing more than 11%. • Less than 24 hours later, Prime Minister David Cameron resigned and after a brief power-play, Teresa May emerged as the new PM. Weathering the storm • Bank of England’s Mark Carney introduced went on to halve interest rates to 0.25% for the first time since 2009 and introducing a bond purchasing programme. • The markets nodded their approval and the British people and economy seemed to just get on with it. • A low pound gave a boost to summer tourism and retailers seem to fare relatively well. Or was that just the eye of the storm? • Then on the 2nd of October, PM May commented she will be looking to conduct a ‘hard Brexit from the EU’ and gave the date for triggering Article 50 by March 2017. • 5 days later, during the Asian trading session, the pound unexpectedly nose-dived against the US dollar and the euro. The cable plummeted from $1.26133 to $1.19065 losing 5.7%. • Algo trading or a rogue trader with a ‘fat finger’ have been blamed for the “flash crash” of the pound as has the expiry of forex positions on Friday as financial institutions moved to hedge their exposure at the same time. What’s ahead for the pound? • Britain’s gross domestic product is expected to grow by just 1.5% this year and only 0.6% in 2017, which is down sharply from the previous forecasts of 1.8% and 2.1% • The International Monetary Fund recently downgraded its outlook on UK growth to 1.7% in 2016 and 1.3% in 2017 and also lowered its outlook on overall global growth this year and next, citing heighted risks emanating from Brexit. • So while the British economy appears to have weathered the immediate impact of the Brexit vote. Policymakers are still bracing for the worst, with the Bank of England (BOE) warning repeatedly that the worst is yet to come. What does this mean for you, the trader? • Opportunities lie ahead. And as always, with greater opportunity comes greater risks • This is where getting your risk management sorted is of top priority • If you haven’t tried our dealCancellation feature yet, then now might be the perfect time to discover how you can cancel a losing trade within 60 minutes of opening. You’ll find dealCancellation on the trading ticket of your easyMarkets platform.
For more info: https://www.easymarkets.com/gtw/6310869.aspx
If there’s something the Flash Crash of the pound showed us a week ago is that since the Brexit referendum the pound is balancing on a tautly pulled string where anything might happen.
Here’s a quick look at what happened and the pound’s recent performance.
• It started with the UK’s vote to leave the European Union on 23rd of June. Investors reacted immediately with markets from Tokyo to New York experiencing on their worst trading days since the financial crisis of 2008
• By the close of day $2 trillion had been wiped from the global exchanges – the biggest single-day drop in history.
• The sterling bore the brunt of it plunging to a 31-year low, dropping from 1.57 to 1.3684, losing more than 11%.
• Less than 24 hours later, Prime Minister David Cameron resigned and after a brief power-play, Teresa May emerged as the new PM.
Weathering the storm
• Bank of England’s Mark Carney introduced went on to halve interest rates to 0.25% for the first time since 2009 and introducing a bond purchasing programme.
• The markets nodded their approval and the British people and economy seemed to just get on with it.
• A low pound gave a boost to summer tourism and retailers seem to fare relatively well.
Or was that just the eye of the storm?
• Then on the 2nd of October, PM May commented she will be looking to conduct a ‘hard Brexit from the EU’ and gave the date for triggering Article 50 by March 2017.
• 5 days later, during the Asian trading session, the pound unexpectedly nose-dived against the US dollar and the euro. The cable plummeted from $1.26133 to $1.19065 losing 5.7%.
• Algo trading or a rogue trader with a ‘fat finger’ have been blamed for the “flash crash” of the pound as has the expiry of forex positions on Friday as financial institutions moved to hedge their exposure at the same time.
What’s ahead for the pound?
• Britain’s gross domestic product is expected to grow by just 1.5% this year and only 0.6% in 2017, which is down sharply from the previous forecasts of 1.8% and 2.1%
• The International Monetary Fund recently downgraded its outlook on UK growth to 1.7% in 2016 and 1.3% in 2017 and also lowered its outlook on overall global growth this year and next, citing heighted risks emanating from Brexit.
• So while the British economy appears to have weathered the immediate impact of the Brexit vote. Policymakers are still bracing for the worst, with the Bank of England (BOE) warning repeatedly that the worst is yet to come.
What does this mean for you, the trader?
• Opportunities lie ahead. And as always, with greater opportunity comes greater risks
• This is where getting your risk management sorted is of top priority
• If you haven’t tried our dealCancellation feature yet, then now might be the perfect time to discover how you can cancel a losing trade within 60 minutes of opening. You’ll find dealCancellation on the trading ticket of your easyMarkets platform.