The pound just went crazy after a suspected 'fat finger' trade

The British pound is going crazy again on Tuesday as volatility in the currency continues to ramp up ahead of the UK’s referendum on membership of the European Union in just over two weeks.

In Asian trading, at around 5:05 a.m. BST (0:05 a.m. ET) sterling jumped against the dollar from $1.4480 to $1.4583 in a straight line, before instantly starting to fall once again. It now appears to have settled at around $1.4524, a gain of around 0.57% on the day.

Here’s the chart showing just how wild sterling’s ride has been so far on Tuesday:

There doesn’t seem to be any clear catalyst for the massive move in Britain’s currency, although a new poll released late on Monday by YouGov showed the Remain campaign maintaining a lead over the Brexiteers. That reversed the polling forecasts earlier in the day which showed the Leave campaign moving into the lead.

However, YouGov’s poll was released more than six hours before sterling’s jump so it seems unlikely to have been the catalyst. Instead, market consensus seems to be that the move was caused by a so-called “fat finger” trade, whereby a trader punches in a transaction incorrectly which can in turn trigger automatic orders, known as stops, to sell or buy currencies. A trader from one City of London trading firm confirmed to Business Insider that they believe the trade was a ‘fat finger’ mistake.

In normal trading hours, given how liquid the GBP market is, it is unlikely that a single mistake would move the market so massively, but in Asian trade, liquidity is substantially lower, which makes triggering a stop far easier.

Given the crazy volatility of the pound in the past few weeks — it is currently at its most volatile since the financial crisis — the fat finger trade couldn’t have come at a worse time.

The pound has been particularly sensitive to polling data in recent weeks, often moving as much as 1% — a substantial shift for any currency — when new data shows a change in voting intentions. Last Tuesday, the pound spiked 0.9% lower against the dollar after a poll showed a big move towards the Leave campaign. On the other hand, on May 24, the pound surged after an ORB poll showed Remain pulling ahead

If Britain does vote to leave the European Union, predictions about what could happen to the pound have been stark. The Bank of England expects a big fall in the currency, while Joe Rundle, the head of trading at ETX Capital says his firm is planning for “a 20% fall in Sterling and a 20% rise in dollar, so a 40% move” as soon as a vote for Brexit is confirmed.

As Business Insider reported recently, trading firms like ETX are trying to stop customers making risky trades in the run-up to June’s European Union membership referendum in a bid to ensure firms don’t go out of business if there are wild swings in the market following the result.

There have also been warnings that the UK leaving the European Union, as well as sending the pound massively lower, could bring into question Sterling’s status as a global reserve currency. Ratings agency Standard & Poor’s said in a note in May that a “UK departure from the EU could put sterling’s reserve status at risk by deterring foreign direct investment and other capital inflows into the UK.”

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