GBP suffers ‘flash crash’ while USD stays strong

Currencies Direct October 7th 2016 - 2 minute read

The pound has again dominated the market news, falling to 31-year lows against the US dollar following talk about a ‘hard Brexit’. The dollar was boosted by its domestic economic data, performing well against both the pound and the euro.
Elsewhere, the euro traded well against the struggling pound but was slightly subdued against the stronger USD. The New Zealand dollar had a week of fluctuation, seeing both a boost and a weakening.
Sterling plummets to record lows
This week has seen the British pound plummet to lows not seen in over three decades. Following talk of a ‘hard Brexit’ – which would leave the UK without any trade deals negotiated upon leaving the European Union (EU) – the country’s currency fell to its lowest level against the US dollar since 1985, when miners’ strikes caused the pound to nosedive.
Sterling crashed to these low levels early in the week and there was little respite, falling again on Today’s Asian trading in what has been called a ‘flash crash’ by analysts. The pound managed to claw back some value but it remains at a low trading level.
CNN has reported that analysts have said a number of factors could be responsible for the fall, including computer trading programmes, human error or a significant market player “making a big move”. Other experts have suggested that the cause was French president Francois Hollande calling for tough negotiations on Britain’s exit from the EU.
The euro is trading well against the pound
The pound lost a significant amount of value against the euro this week, dropping to a three-year low. It managed to gain back a small amount of ground after a reported rogue trade was cancelled but the euro was still trading well against Sterling on Friday.
Meanwhile, the euro did not fare as well against the dollar, largely due to poorer than expected Eurozone data and strong US jobless claim figures. The Eurozone Producer Price Index (PPI) fell by 0.2% month-on-month in August.
Better than expected data bolster the US dollar
The US dollar has seen its own value bolstered by better than expected data released over the last few days. This includes weekly unemployment benefit claim figures, which posted at 249,000, lower than the predicted 257,000.
Institute for Supply Management Non-Manufacturing data also added to the strong US performance, coming in at a higher than expected 57.1.
This week, the dollar traded extremely strongly against both the pound and the euro, which could not outperform the greenback due its own less than impressive economic data.
Reserve Bank of Australia’s decision boosts the NZ dollar
New Zealand’s dollar was boosted by the Reserve Bank of Australia deciding to leave its benchmark lending rate on hold, as investors think this means a New Zealand interest rate cut will be unlikely to happen before Christmas.
However, the NZD was negatively affected by a fall in the price of whole milk powder, New Zealand’s most important dairy export.
This week, the pound fell to ten-year lows against the New Zealand currency, but Sterling recovered enough to reach near the week’s opening levels. The NZD's growth was limited by increased demand for the strong USD.


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