Pound falls 6% in Asian trading mystery

The pound fell by 6% to US$1.1841 on Friday morning, with traders confused as to the cause.

It sent the FTSE 100 up by 28 points to 7,028 in early trading. The blue-chip index tends to rise when sterling falls, because most of the constituent companies earn the majority of their money in dollars, rather than pounds.

At one stage in overnight trading, the pound was down by as much as 10% to $1.1378, until a rogue outlying trade was cancelled, leading to a recovery. When the London markets opened, sterling was trading at $1.2430.

As the currency rallied, there was speculation that a technical glitch or human error had caused a flurry of computer-driven orders.

Naeem Aslam, the chief market analyst at Think Markets, said in a note: "What we had was insane - call it flash crash, but the move of this magnitude really tells you how low the currency can really go. Hard Brexit has haunted sterling."

A trader at a European bank in Tokyo said: "This was even a bigger move than what we saw after the Brexit vote. There was almost no offer, no bids when this happened."

Others suspected that the cause was a more conventional intervention, citing a Financial Times article in which the French president, François Hollande, said Britain would have to "suffer" for the Brexit vote in order to ensure EU unity.

Some algorithms have been designed to feed off news headlines and social media, meaning that the programmes can be affected by human factors.

Photograph: Toru Yamanaka/AFP/Getty Images

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