The beginning of the year shocked the currency market with the occurrence of the so-called flash crash phenomenon, which appeared during the day off in the Asian market and led to a sharp collapse in such currencies like the pound, the yen or the Australian dollar.
Flash crash is a very fast and deep drop in prices occurring in a very short period, which could in this case be caused by low liquidity on the market and automated orders. After the January crash, the British pound went up again, erasing the strong decline. The increases started the following day and the GBP/USD raised from 1.2386 to 1.3380.
Nevertheless, the good streak for the British pound ended in mid-March. Since then, the British currency has been systematically depreciating, and against the dollar has just reached the lowest level in six months (the levels observed during January’s flash crash). Uncertainty around Brexit, a high probability that the prime minister will be a person wanting to bring Britain out of the European Union even without a deal and change in market expectations regarding monetary policy may be the main cause of GBP depreciation.
What's more, the most likely scenario for Brexit seems to be the extension of Article 50 due to the general elections in the United Kingdom. In turn, the next scenario may assume rejection by the EU of the extension of Article 50 and the implementation of hard Brexit. That could plunge the pound, which the market may already be afraid of.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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