Value Of British Pound Mysteriously Falls Six Percent

| by Sarah Zimmerman
British poundBritish pound

The value of the British pound mysteriously dropped by six percent in only a span of minutes in the early hours of Oct. 7 while trading in Asia. While most of the loss has been since recovered, experts are scrambling to figure out why it even happened in the first place.

During financial trade with Asia in the early morning, the pound briefly experienced a "flash crash," and its value plummeted six percent to $1.1841, according to The Guardian. At one point, the British currency was down as much as 10 percent, at which case a a rogue outlying trade was canceled and much of the loss was recovered. The pound isn't completely stable, however, and is currently down two percent.

The Bank of England had little to say on the incident, telling the Guardian, "We are looking at the causes of the sharp falls overnight."

The New York Times calls the collapse a "flash crash," and speculated that it was caused by automatic trades or human error, like a misplaced keystroke. Nonetheless, many are saying that the incident was an unavoidable side-effect of the United Kingdom's decision to leave the European Union, or "Brexit."

Many have hoped that British conservatives would negotiate a so-called "soft Brexit," which would mean that the country would still abide by European laws and pay into the EU budget, thus minimize long-term financial damage. However, a recent Conservative Party has confirmed that the country will be on the path for a "hard Brexit," meaning that all exports are subject to tariff and non-tariff barriers, according to The Economist. 

HSBC strategist David Bloom told The Guardian that this crash will only be one instance in a series of declines for the pound. He expects the pound to be worth $1.10 by 2017.

"To us, the foreign exchange market is exhibiting an uncanny resemblance to the five stages of grief," Bloom said. "First, following the Brexit vote came the denial -- theories circulated whether a second referendum would have to take place. Second was anger -- claims the vote was unfair. Third was the bargaining -- arguments maybe it wouldn't be that bad, what if the UK followed the Norwegian or Switzerland model. Now, the fourth -- a gloom is prevailing over the pound."

Sources: The Guardian, The New York Times, The Economist / Photo Credit: Petras Gagilas

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