Pound sterling fell as low as $1.1819, down 9%, in early morning trading. That marked its lowest level since 1985’s mining industry strike-fueled currency disaster.
At latest check, the pound recovered some of its losses to $1.24, still down 6% from yesterday’s close.
The reasons for the sudden drop are unclear. Some analysts are blaming a “fat finger” error by a trader, while others speculate about a low liquidity sell-off. If a firm closed out a large options position, for example, at a time where there wasn’t much liquidity in the markets to sop it up, it could trigger a large decline that rebounds quickly once the markets wake up to the issue.
Other possible causes for the crash include algorithmic trading moves and fears of a “hard Brexit” — where Britain would quickly leave the EU and sort out much of the details later.
Since this kind of move in a major currency like the pound is highly unusual, it warrants serious observation from investors.
The CurrencyShares British Pound Sterling Trust (NYSE:FXB) fell $2.83 (-2.30%) to all-time lows of $120.40 in premarket trading Friday. Introduced in 2006, the FXB is the most popular currency ETF tied to the British pound.