Another Pound overreaction?
There was an “accidental” selloff of the Pound yesterday, plunging its value to $1.15 for a brief moment. But the Pound continues to drop even more than expected. Can it recover at all? Is this an overreaction, just like right after the Brexit vote happened? Or is this $1.23-$1.25 level here to stay?
When I saw the chart, my instant thought on the price action was that somebody had fat fingered an institutional trade, and the algo's had compounded it (in the spot market). The best way to look at this is as part of the puzzle, instead of isolation. I would be looking at some of the longer dated derivatives (forwards,futures,swaps) and identifying the same/different price action in these markets, thus confirming if this is isolated (Fat Finger), or intentional.
In the longer term, I see £:$ parity unless Theresa May has a complete U-turn in her rhetoric.
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