Euro Pound (EUR GBP) exchange rates rocketed to a five-and-a-quarter-year high last night on a suspected trading error during the Asian session. The Pound failed to hold onto ground recovered during the beginning of the session, potentially suggesting the current level could become the new normal next week rather than an anomaly.
- EUR GBP on the decline – Euro remains at five-and-a-quarter year high
- Pound tumbles on rogue trade – GBP crashes to new lows on potential computer error
- Can today’s data rescue the Pound? – Strong data docket and weak US payrolls may not be enough
- EUR GBP exchange rate forecast – Euro may push back to recent highs on strong NFP
Market chaos caused the Pound to collapse overnight after a suspected algorithmic trading error saw an enormous Sterling sell-off.
Pound Edges Above Opening Levels; Sterling Slump Sending Clear Message?
16.28, 07/10/2016: While the markets still believe the Pound crash was caused in error, some analysts are starting to suggest that the subsequent failure of Sterling to particularly recover is a sign of how unimpressed the markets are with the current state of the UK economy and politics. However, the Pound has managed to claw its way back to opening levels.
EUR GBP Hits New High as Pound Falls Below Night’s Shock Lows
11.17, 07/10/2016: EUR GBP just struck a new recent high as the day’s Pound rally quickly evaporated. Investors clearly aren’t hopeful that the Pound will receive any support in the near future.
Euro Pound (EUR GBP) Exchange Rate Retreats from Flash Highs
The Euro is mixed today, weakened across the board by low trading volumes as markets eye the vital US non-farm payrolls report set for release this afternoon. This, combined with pressure as Sterling rebounds from the nights shock lows, has ensured EUR GBP is on the decline.
Positive domestic data has therefore been ignored. German industrial production posted a significant rise on the month and the year in August. Monthly production grew 2.5% against forecasts of 1% growth after a decline of -1.5% in July. Annual output expanded 1.9% on a working-day-adjusted, non-seasonal basis, against forecasts of just 0.4% growth after the downwardly-revised -1.3% fall in the previous month.
Battered Pound (GBP) Begins Long Climb towards Previous Closing Levels
Sterling tumbled -2.5% during last night’s Asian session after a suspected computer error or ‘fat finger trade’ triggered a mass sell-off of the Pound. Sterling is on the rise after collapsing to a five-and-a-half-year low, but after breaking through to fresh recent lows, it is hard to see the GBP uptrend as a ‘recovery’.
Many traders use algorithms to execute trades at speeds much greater than a human could manage. These are often set to follow news, or even social media updates, with certain events or keywords automatically triggering a buy or sell action. Just before the crash, news had emerged of hard-line comments by French Prime Minister Francois Hollande, who noted;
‘The UK has decided to do a Brexit, I believe even a hard Brexit. Well, then we must go all the way through the UK’s willingness to leave the EU. We have to have this firmness.
If not, we would jeopardise the fundamental principles of the EU. Other countries would want to leave the EU to get the supposed advantages without the obligations.
There must be a threat, there must be a risk, there must be a price. Otherwise we will be in a negotiation that cannot end well.’
A computer rigged to sell the Pound upon negative Brexit headlines may therefore have been the culprit, with GBP hit harder by the fact the trade was made during low liquidity, when large market movements have an even more pronounced impact.
Euro Pound (EUR GBP) Exchange Rate Forecast; Can Sterling Recover with US Payrolls Ahead?
There is no Eurozone data left, but if the key US non-farm payrolls figure released later today proves bullish the Euro could be set for a strong rise.
Today’s crash may have rendered the upcoming UK data largely irrelevant, as even if the industrial and manufacturing production and trade balance figures for August show strong gains the Pound is unlikely to recover above pre-crash lows. Weaker data may be ignored, or may push the Pound back towards its nightly lows. A strong US NFP will almost certainly see the Pound fall, which could set GBP exchange rate forecasts on an even lower trajectory in coming months.