Sterling recouped some losses after plunging to a three-decade low in Asian trade on Friday amid growing fears of a “hard” exit by Britain from the European Union.
The pound nosedived almost 10 percent at one point to US$1.1378 after crashing through key support levels and triggering a wave of selling, Reuters reports.
But it quickly bounced and by late morning was around 1.2441, still down about 1.5 percent from late US levels and leaving traders scratching their heads in the absence of any major news overnight, the news agency said.
“This was even a bigger move than what we saw after the Brexit vote. There were almost no offers, no bids when this happened,” said a trader at a European bank in Tokyo.
The pound has come under renewed pressure as fears grow that Britain’s divorce from the EU will be messier and costlier for the economy than expected.
Prime Minister Theresa May on Sunday set a March deadline for the formal departure process from the EU to begin.
“The whole thing’s been on a precipice since Sunday, since Theresa May [pointed to] March Brexit negotiations, but the selling has been very substantial so you can only think it’s been part of that general punishment of the pound for Brexit,” said Sean Callow, senior currency strategist at Westpac in Sydney.
“I think we’ve underestimated how many people had money positions for a very wishy-washy Brexit or even none. May’s comments have really just started the cleanout and we just haven’t seen any sign of bouncing.”
While sterling’s move broadly coincided with some news reports that Britain’s separation from the eurozone may be a tough process, some traders blamed it on a possible “fat finger” error triggering automatic stop-loss orders.
“A few stops got triggered in early trading and once cable broke 1.20, option barriers sent it lower,” said Gerrard Katz, head of Asian FX sales and trading at Scotiabank said.
“The broader market impact has been limited and cable should consolidate between the 1.20 and 1.25 levels.”
Britain’s finance minister Philip Hammond tried to reassure jittery markets on Thursday, saying the UK economy was fundamentally strong, but he acknowledged that next year will be “turbulent”.
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