The British Rupiah plunges!

That's a huge drop in exchange rates rarely seen in currencies other than Zimbabwe's. It could have gone lower than 1.2 except for trading stops which were triggered.

French president Hollande enjoyed himself sticking the boots into UK.

It got as low as US$ 1.2 overnight.

http://az705044.vo.msecnd.net/20161006/gbpusd-one-minute-flash-crash.png

http://az705044.vo.msecnd.net/20161006/sterling-smashed-chart-07-october-2016.png

http://news.forexlive.com/!/gbp-plunge-hollande-gets-the-narrative-prize-20161006


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The catalyst appears to be the very hardline comment from French President Hollande (I posted this earlier): Financial Times here (gated) Britain must suffer the consequences of leaving the EU in order to save the institution from an existential crisis, François Hollande said on Thursday. "There must be a threat, there must be a risk, there must be a price. Otherwise we will be in a negotiation that cannot end well." And I added: Stern words indeed from the president of France. If you're gunna listen to some in the EU then you'd be listening to Germany and France. Still, that's a HUGE move on a comment. OK, just a couple of things to add for info: Reuters report a low hit of 1.1378. That's insane and would appear to be a mis-hit. These happen. The low I have seen reported from EBS is 1.1841. That's a more reliable piece of information. You will know, if you are reading ForexLive, that the FX market is OTC so deals may have been struck at lower rates. That's what OTC implies. In the FX market there is zero obligation to report deals between counterparties, there is information that goes unreported and unknown to all but the counterparties. I'm hoping this is not news to you if you are trading FX. A barrier option was triggered at 1.2 -- OK, on the move. Holland appears to have been the catalyst. In order for a move to respond to a catalyst the preconditions must be in place. The preconditions (some of the most pertinent) were the Brexit vote months ago (of course) and most recently the weekend comments from UK PM May and surrounding ministerial remarks that indicate a 'hard' exit is a very real possibility. A hard exit is the worst exit in the eyes of the FX market. While Hollande appears to have been the catalyst the move will have been started by a very, very large sell order hitting. Most likely a 'get me the *** out of this' stop loss. With some shorts piggybacking on it for good measure. Once a move like this starts you get a cascade of stops hitting (ditto on the I hope if this is not news to you). Ditto too on the explanations that included: algos (yes, there are algos that hit prices, and they are faster than humans can be) illiquidity (yes, the time post-NY and pre-Tokyo, and pre HK and Sing. is the most illiquid time of the 24 hours FX day. I am boringly repetitive on this ... for a reason) Lastly, if you are trading markets there will be things you will not know and cannot know. This is not a failing of yours. This is life in the markets. Its doubly true in forex, see my comment: In the FX market there is zero obligation to report deals between counterparties, there is information that goes unreported and unknown to all but the counterparties

I blame the closet poms like you.

bogarde73 wrote on Oct 7^th, 2016 at 10:51am:

I blame the closet poms like you.

Have you lost your head? Its the fault of Islam!

Andrei Hicks must be suicidal. He sold his house in Australia several years ago and supposedly took refuge in UK.

His GBPs are looking pretty sick now.

Is parity with US$ on the horizon?

Its looking South to the $1.20 level.

The GBP has been downwardly mobile against USD for 100 years.

GBP is approaching parity with Euro.

https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iTXd7vQzxBrE/v2/-1x-1.png

GBP has settled below USA $ 1.25 for the moment. The next shock will be interesting.

The GBP had a spectacular decline from $ 2.40 to $ 1.05 in 1981 - 1985.

George Soros made billions betting against the GBP in 1992 because the UK was losing billions a day trying to support the value of the GBP and in the end UK government ran out of money in the foreign exchange casino and the wolves carried the corpse away.

http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp#ixzz4MRrFD5j2


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In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually break it, but they forced the British government to pull it from the European Exchange Rate Mechanism (ERM). Joining the ERM was part of Britain's effort to help along the unification of the European economies. However, in the imperialistic style of old, she had tried to stack the deck. Although it stood apart from European currencies, the British pound had shadowed the German mark in the period leading up to the 1990s. Unfortunately, the desire to "keep up with the Joneses" left Britain with low interest rates and high inflation. Britain entered the ERM with the express desire to keep its currency above 2.7 marks to the pound. This was fundamentally unsound because Britain's inflation rate was many times that of Germany's. (Keep reading about this in Stop Keeping Up With The Joneses - They're Broke.)

Did you short the GBP or are you just talking shiiit as usual? What do the people at Frecklepunch.org think will happen?

Gordon wrote on Oct 8^th, 2016 at 10:12am:

Did you short the GBP or are you just talking shiiit as usual? What do the people at Frecklepunch.org think will happen?

hilarious

not sure why unforgiven is concerned to be honest they will never allow him into Britain.. ::) ::)

Gordon wrote on Oct 8^th, 2016 at 10:12am:

Did you short the GBP or are you just talking shiiit as usual? What do the people at Frecklepunch.org think will happen?

Gordon darling. You have evidently got out of the wrong side of the bed. Come back when your humor improves.

cods wrote on Oct 8^th, 2016 at 10:36am:

Gordon wrote on Oct 8th, 2016 at 10:12am: Did you short the GBP or are you just talking shiiit as usual? What do the people at Frecklepunch.org think will happen? hilarious not sure why unforgiven is concerned to be honest they will never allow him into Britain.. ::) ::)

Ignorance is Cods' finest quality.

Worked in London UK 1977-79. I was appalled at the financial and intellectual poverty. Poverty stricken Pensioners like Cods and Herbert who couldn't afford heating hung out in local pubs hoping the regulars would buy them drinks.

Pubs closed at 3:00 pm in that era so that the drinkers could be forced to go back to work.

It was also the Kray brothers era. I knew a Vernon's Pools manager at that time and he used the knuckle men to collect from football pool distributors who were late with their payments.

GBP has become a political currency subject to news flashes.

http://www.investopedia.com/news/why-british-pound-experienced-flash-crash-today/#ixzz4MSQ2Vjfx


Quote:

David Bloom, an analyst at HSBC, told the Financial Times, "Sterling used to be a relatively simple currency that used to trade on cyclical events and data, but now it has become a political and structural currency. This is a recipe for weakness given its twin deficits. The currency is now the de facto official opposition to the government’s policies." According to Kathleen Brooks at City Index, the dramatic fall was a result of algorithms "reacting" to news headlines. She said, “These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for GBP. Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure." Brooks predicts more flash crashes are possible since the currency market is being guided by politics instead of economic fundamentals.

Forecasters are predicting GBP at Euro parity and at US$ 1.10 in 2017. It appears that GBP has no credibilty, particularly if the oil price recovers and UK trade balance heads further South.

https://www.poundsterlinglive.com/gbp-live-today/5558-gbp-to-eur-and-usd-manufacturing-production


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GBP collapsed around the Asian open, with trades apparently going through below 1.15 in GBP/USD. The move happened right at the point of thinnest liquidity and on a day (US payrolls Friday) when volumes would have been unusually thin anyway. The official low reached has been hard to ascertain with various commercial rate providers offering different views. The Bank of England is meanwhile investigating the cause of a sharp fall in the value of the pound in overnight trading in Asia, a spokesman for the central bank said on Friday. "The Bank is looking into last night's fall in sterling," a Bank official told Reuters. It will take time for the investigation to conclude but the damage to Sterling's reputation and outlook has been done, whatever the cause of the crash. Here are the latest reactions and expectations from those in the know: David Bloom at HSBC reckons par for the Euro and Pound is going to happen: "GBP has gone from a cyclical to a political and structural currency. The structure and politics are conducive to a currency that needs to fall to a level that causes balance. That balancing act is and has been in our eyes is still a lot lower than where it is today. "We continue to look for GBP-USD at 1.20 by year end and 1.10 by end 2017, taking EUR-GBP to parity."

Be nice if the Brits picked up the tab on higher oil prices by having a low value currency.

Poor old John Bull doesn't know whether he is Arthur or Martha post Brexit. Worms are eating John's lunch.

GBP is ~ US$ 1.22 and falling. GBP is EUR ~1.1

Brexit is beginning to show its teeth.

Andrei Hicks must be howling with anguish after selling up in Australia and converting his wealth into cheap GBP.

The street price is even lower with some airports offering less than 1 Euro for a British Lira.

http://www.bbc.com/news/business-37609114


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Less than one euro to the pound at many UK airports By Ian Pollock You can find better currency rates almost anywhere other than at an airport. Many travellers buying foreign currency at the UK's airports are now receiving less than one euro to the pound. The continued fall in sterling's value means that the average rate available at 17 airport bureaux de change is now just 99 euro cents to the pound. The worst rate is currently 88 euro cents at Moneycorp at Southampton airport and the best is €1.06 from the Change Group at Glasgow Prestwick. Since the UK's Brexit vote in June, the pound has fallen sharply in value. The average US dollar rate at the airports is down to $1.08 to the pound. The survey of airport bureau de change currency rates was carried out by travel money firm FairFX on Monday morning. The firm's chief executive, Ian Strafford-Taylor, said many travellers would be shocked by the poor rates on offer. "Currency firms operating in airports are known to offer the worst exchange rates down to taking big profit margins and today are shockingly offering holidaymakers below one euro to the pound," he said. "Unfortunately, if the pound falls even further, rates as poor as this could be seen at airport providers up and down the country - taking advantage of their captive audience of holidaymakers and business travellers." Dollar rates The survey found that most quoted rates for people buying euros with sterling clustered around one euro to the pound. That is far below the current wholesale rate of €1.11 to the pound, which is the rate at which banks are buying and selling the currencies between each other. Another particularly low rate was 89 euro cents from ForExchange at Cardiff airport. The US dollar rates on offer at the 17 airports vary from just $0.97 to the pound from ForExchange at Cardiff airport, to $1.13 from ICE at Heathrow's Terminal 3. Those compare to the current wholesale market rate of just under $1.24 to the pound. Bureaux de change at airports are notorious for their low rates. In the past, the firms operating them have explained that they have high running costs - for instance, because of their very long opening hours. Travellers rates are in general much more favourable with specialist foreign exchange firms, or even if ordered in advance from the bureau operators themselves. More expensive petrol Another effect of the falling pound is likely to be in higher petrol prices, according to the Petrol Retailers' Association (PRA). It forecast that vehicle owners will be paying an extra four or five pence per litre (ppl) for petrol by the end of October because retail prices have, so far, only reflected part of the recent rise in wholesale prices. Petrol prices hinge on the value of oil, which is priced in dollars, and the falling pound against the US currency means that petrol automatically become more expensive at the pump. "Wholesale costs to retailers have increased by over six ppl for petrol and seven ppl for diesel in the last few weeks, whereas the UK average pump prices have moved up by less than two ppl for both grades over the same time period," said Brian Madderson, Chairman of the PRA. "Thus motorists can expect increases by the end of the month unless there are favourable corrections to the exchange rate and to global oil prices. "The double impact of the pound weakening against US dollar and global oil prices strengthening will cause pump prices to move sharply upwards," he added. 'Welcome change' But Mervyn King, the former governor of the Bank of England, has welcomed the fall in the pound. In an interview with Sky News, Lord King said: "The economy was slowing somewhat before the vote and we are in a position where the rest of the world is not offering us much help. "So from that point of view the fall in sterling is a welcome change." He said that last week's "flash crash" in the pound had generated reactions which "were over the top". "During the referendum campaign, someone said the real danger of Brexit is you'll end up with higher interest rates, lower house prices and a lower exchange rate, and I thought: 'dream on'." "Because that's what we've been trying to achieve for the past three years and now we have a chance of getting it."

From the BBC:

Jim Rogers, investor, says GBP will go under $ 1 within 3 years especially if Scotland leaves the UK causing a huge sag in trade balance due to Scotland's oil and gas becoming an import rather than a UK product.

Will Italians, Spanish and Greeks be seeking cheap holidays in UK in the future?

http://www.bbc.com/news/business-37659503


Quote:

Jim Rogers: Sterling is in serious decline 14 October 2016 Last updated at 15:19 BST Investor Jim Rogers says there are "serious problems facing the UK" and that the pound's value will "certainly go under one dollar" if Scotland leaves the UK. He told the BBC's Mark Mardell, "You've got a lot of debt, you've got a serious balance of trade problem which shows no signs of being corrected. I don't see anything to make sterling go up."

Things iz crook mate. Bank of America is forecasting possibility of GBP < $1.

There is a gaping current account (click on image to view full extent) deficit which is worsening every month and will continue to feed on Brexit nervousness and uncertainty.

https://www.poundsterlinglive.com/images/graphs/current-account-deficit-GBP-impact.png

https://www.poundsterlinglive.com/gbp-live-today/5590-gbp-to-eur-and-usd-decline-infancy


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Momentum and historical precedent set by previous bouts of Pound Sterling weakness have Bank of America nervous that their official forecasts for the currency are far too optimistic. Pound to Dollar exchange rate today (14-10-16) = 1.2213, Pound to Euro exchange rate today: 1.1088 3 events that will determine Sterling direction over three months Data doesn’t matter anymore Peak-to-trough move 18% of the way through relative to 1975; 63% versus 1992 and 33% versus 2008. The Pound has underperformed all other major currencies over the past month having at one point plunged below $1.15 for the first time since 1985. It also fell briefly under €1.10. The October decline was triggered by confirmation that the UK will go ahead and start the EU withdrawal in March 2017 and market perceptions of an increased risk of a so called hard-Brexit. With no one really knowing what a hard-Brexit looks like layers of uncertainty remain, providing the perfect vacuum within which Sterling can fall yet further. New research on the Pound by Bank of America Merrill Lynch Global Research suggests Sterling price-action will be dominated by three main events in the coming months. The first is the Bank of England Quarterly Inflation Report (3rd November), the second is the Autumn Statement (23rd November) and the third is the timing of the triggering of Article 50 (sometime in 1Q 2017). The first two events are relatively known quantities whereas the third is less so, and analysts Robert Wood, Kamal Sharma, Sebastien Cross and Mark Capleton think this will pose the greatest risks to the Pound owing to the uncertainty it poses to much-needed foreign investment flows to the UK. Current Account Deficit and Investor Inflows: The Pound's Achilles Heal If you read a piece of institutional research on Sterling these days its not long before the topic of the UK’s gaping current account deficit is brought up. The current account is the UK’s bank balance with the rest of the world - it is currently in deficit which suggests we pay out more than we bring in. At present the current account deficit is at historical highs confirming a reliance on foreign imports and declining receipts from foreign investments. Current account deficit Because we import more than we export logic dictates that the currency should fall we sell more Sterling to buy the foreign currency to fund our reliance on imports. But, Sterling remains elevated above the fair value implied by the current account thanks to strong inflows from foreign investors, keen to invest in the UK. UniCredit’s Erik Nielsen points out that we must rely on about £10BN a month of foreign inflows to keep Sterling stable. It is this inflow that has allowed funded our ability to stock supermarket shelves with cheap Marmite. What would happen to Sterling if that inflow were to dry up? “The UK’s current account deficit makes the economy vulnerable to actions and words that could undermine the ‘kindness of strangers’, in Mark Carney’s language, who fund the UK deficit,” say Bank of America. Bank of England Deputy Governor Ben Broadbent argued this week, the credibility of the UK’s institutions has helped keep current account deficits sustainable in the past. “Undermine that credibility, and sustainable could turn to unsustainable. That is probably one lesson of recent days,” say Bank of America. Analysts at UBS believe the Pound could actually par the Euro owing to the current account deficit. Ignore the Data We saw Sterling snap its post-referendum decline in July thanks to better-than-anticipated data. However, it is argued this support will be in short supply going forward as the Brexit process casts uncertainty over the UK's future economic landscape. “That is why we have been, and remain, pessimistic about the economic outlook,” say Bank of America. The team doubt that the improvement in UK data will: a) continue and; b) provide support for the Pound. It is believed the UK rates market will consequently be reluctant to react to any good news on the economy and the correlation between GBP and UK data surprises will remain weak: Greatest risks to the Pound Furthermore, it is argued that the announcement of a triggering of article 50 and a hard Brexit will almost make the recent improvement in data redundant as the macro parameters have now changed and the risks are that data deteriorate once more. The Pound’s Decline is in its Infancy An interesting clue on the likely direction of the Pound can be found in previous bouts of weakness. The initial sell-off in GBP/USD following the EU Referendum was immediate and resembled the price action in 1992 when the Pound was ejected from the Exchange Rate Mechanism (ERM). If that pace of depreciation had been sustained, Bank of America note that GBP/USD would have been comfortably trading below 1.20 by now. Such a decline has however been avoided as the improvement in UK data (relative to analysts’ overly bearish expectations) has seen GBP/USD stabilise ...

Too much worry & pessimism here. You only get the chance of a few GFCs in a lifetime to make money.
Always have contingency plans ready to be able to buy at the bottom.

Inflation is now starting to bite with the sharp devaluation of the GBP.

The bottom layer of society will be hardest hit because food is their biggest budget item after rent.

UK is going backwards. Expect Scottish insurgency when the oil price rises.

http://www.bbc.com/news/business-37652467


Quote:

The governor of the Bank of England made clear that sterling's fall "helps the economy adjust". However, he said it was "going to get difficult [for those on the lowest incomes] as we move from no inflation to some inflation". He said that food would be the first to experience price rises. More broadly, Mr Carney said goods and services would see higher inflation over the next "few years". "It will show up," he said. Mr Carney, who was speaking at a public roundtable with charities and other third sector organisations in Nottingham, said it was not the Bank's job to target the value of sterling but that "we are not indifferent to it, it matters to the conduct of monetary policy". He said the Bank had to "weigh increased inflation against supporting the economy" with low interest rates. The pound recovered most of the days losses against the dollar following his comments. Yields on 10-year UK government bonds rose more than 10 basis points to 1.149% - their highest level since the Brexit vote - as investors bet the currency's recent falls would send inflation higher. Mark Carney A week after Theresa May questioned at the impact of the Bank's quantitative easing policies, Mr Carney also said that Threadneedle Street would not be told what to do by politicians. He said it made the Bank's job more difficult when politicians commented on its policies, rather than its objectives. "We are not going to take instruction on our policies from the political side," the governor added. Protecting jobs Earlier, Mr Carney said that the Bank of England was willing to see an "overshoot" of its 2% inflation target if it meant supporting economic growth and protecting jobs. Between 400,000 and 500,000 jobs could have been at risk if the Bank had not taken action after the referendum, he said. "We are willing to tolerate a bit of an overshoot [on inflation] to avoid unnecessary unemployment. We moved interest rates down to support the economy." The Bank cut interest rates and provided more monetary stimulus in August after the vote to leave the European Union. Mr Carney said long-term economic prosperity could not be guaranteed by the Bank: "We can mess it up, we can't make it. We provide the foundations, not the end." Inequality With the fall in the value of sterling, some economists now predict that inflation will hit 3% by the end of next year as imports of products such as food and fuel become more expensive. On the issue of inequality, Mr Carney said: "We care a lot about distribution, but we are not a political entity." He said many people were still "scarred" by the financial crisis. But he argued it was for the government to decide on policies to tackle issues such as globalisation, technological change and skills education.