Video: Rogue algorithm suspected of causing Sterling ‘flash crash’

STERLING ENDURED a torrid day on the currency markets after an overnight “flash crash” triggered by a suspected “rogue algorithm” sent it plummeting to a fresh 31-year low against the US dollar.

The value of the pound dived during Asian trading session to 1.18 US dollars, before mounting a lacklustre recovery to trade 1.6 per cent lower at 1.241 US dollars – well below levels of 1.26 recorded before the fall.

The Governor of the Bank of England, Mark Carney, has asked for an investigation into the flash crash.

The Governor of the Bank of England, Mark Carney, has asked for an investigation into the flash crash.

The UK currency also failed to mount a full recovery against the euro, down 1.7 per cent at a five-year low of 1.113 euro.

Sterling had come under sustained pressure during the week after investors became increasingly alarmed that Prime Minister Theresa May was opting for a so-called “hard Brexit”, whereby Britain would leave the European single market so the Government could tighten its grip on immigration.

However, market-watchers said the “flash crash” was probably caused by an algorithm reacting to a news story stating that French president Francois Hollande was taking a tough stance on Brexit negotiations.

The Bank of England said it was looking into the cause of the “flash crash”, while some analysts warned that the pound was now on course to reach parity with the euro.

Apparently it was a rogue algorithm that triggered the sell-off.

Kathleen Brooks, research director at spreadbetter City Index

In a follow-up statement, the Bank said governor Mark Carney had asked the BIS markets committee to investigate the events surrounding the flash crash.

It added: “With input from the Bank, the committee will review the lessons from this, and other recent episodes of flash events in FX markets at its next meeting.”

Such has been the severity of the currency fall in recent days that it forced retailer Sports Direct to issue a profit warning on Friday.

It said the “extreme movements” in the pound would cause full year earnings to hit £285m, compared with the £300m it had originally pencilled in.

Kathleen Brooks, research director at spreadbetter City Index, said: “Apparently it was a rogue algorithm that triggered the sell-off after it picked up comments made by the French president, Francois Hollande, who said if Theresa May and co want hard Brexit, they will get hard Brexit.”

Foreign companies listed in London have seen their shares rocket amid the pound’s tumble.

The FTSE 100 Index closed up 0.6 per cent to 7044.39 tonight.