The pound has been hammered in trade today after French president François Hollande called for a hard Brexit for the UK.
Hollande didn’t hold back in front of EU president Jean-Claude Juncker, according to a story that ran in the Financial Times, when he said “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,” he warned, suggesting the EU needs to make an example of Britain so that other nations considering leaving will know they can’t do it without a cost.
According to pricing provided by Thomson Reuters, the GBP/USD fell to as low 1.1819 within a matter of minutes, some 6.3% below Thursday’s closing level.
It was the largest downside move in the pound since June 24, the day after the UK Brexit referendum. It briefly left the GBP/USD, known as Cable or Stirling in markets, trading at the lowest level seen since March 1985.
The GBP has since recovered, currently trading at 1.2440, but the moment is a reminder of volatility to come over the next two years as the UK figures out how to go it alone.
It’s almost certainly a flash crash that coincided with the release of the FT article. The scale and the speed of the drop was likely exacerbated by weak volumes ahead of tonight’s closely-watched US non-farm payrolls report.
Chris Weston, chief markets strategist at IG Markets in Melbourne, agrees.
“This [the FT article] didn’t cause a 770 pip move, but it did push cable through 1.2600 and from here algo’s, stop-loss selling and thin liquidity took over,” he said moments after the plunge.
Buyers have pulled their bids on the downside as fears over just how hard the British exit from the European Union will be, making a mockery of the post-Brexit relief that the June 23 decision didn’t cause chaos on markets.