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The Bank of England has confirmed that it will investigate the cause of a sharp fall in the value of the pound, which plunged in mysterious circumstances in overnight trading in Asia.
The news of the investigation came after the pound suffered a jarring flash crash on Friday morning, nosediving more than 6 per cent against the dollar in a matter of minutes.
“We are looking at the causes of the sharp falls over night,” the Bank of England said in a statement.
The pound fell as much as 6 per cent to $1.1841 – the most aggressive move since the results of the Brexit vote emerged in June – before recovering to $1.24 against the dollar.
The flash crash aftershocks also briefly pushed sterling below €1.10, for the first time since early 2010.
The pound regained some of its lossess but was still down 2 per cent at $1.2363 ahead of the US markets opening on Friday.
Putting Friday's morning's “flash crash” aside, the pound has still fallen about 18 per cent against the dollar to below $1.24 since Britain voted to leave the European Union on 23 June.
The sudden plunge left investors wondering what drove the flash crash.
“It was just another quiet day in Asia, and then, Bang! All the lights went red,” Matt Simpson, senior market analyst at ThinkMarkets, told CNN.
Naeem Aslam, chief market analyst of Think Markets, said the fall was an indicator of how low the currency could still go.
“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,” said Naeem Aslam, chief market analyst of Think Markets, in a note, according to Bloomberg.
One of the theories surrounding the mysterious flash crash include the publication of a report by The Financial Times.
UK: Pound drops to 31-year low against Dollar on Brexit fears
In the report, French President François Hollande said Britain must suffer the consequences of leaving the EU and the EU must demand a tough stance when it negotiates an exit.
Su-Lin Ong, a senior economist at RBC Capital Markets, said: “The move coincided with an FT story about French president Hollande demanding tough Brexit negotiations. The move was exacerbated once stops were tripped below a key level of $1.2600 in very thin trading before the US payrolls.”
David Bloom, HSBC’s global head of FX, said the currency is now “de facto official opposition to the Government’s policies”.
“The argument which is still presented to us, that the UK and EU will resolve their difference and come to an amicable deal, appears a little surreal. It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome,” Mr Bloom said.
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