The changing nature of foreign exchange markets could prompt more flash crashes like the one experienced last October when the pound dropped 9 per cent in a matter of seconds, according to a Bank of England boss.
In a speech to the City last night, head of the Bank’s markets directorate Chris Salmon said increased electronic trading means markets can respond rapidly to events and reducing transaction costs.
But he warned that the contrast of the flash crash with the orderly correction of the pound following the UK’s vote to leave the European Union was stark.
Salmon attributed the smooth functioning of the FX markets following Brexit to preparation.
He said: “While recent events fortify my confidence in the ability of core financial markets to process identifiable risks, I equally expect flash moves in the self-same markets to continue to surprise us, even if I cannot hope to predict precisely when or in what instrument or currency pair the next significant flash event will occur.”
The pound fell 17 per cent against the dollar over the course of 2016.
The flash crash, on 7 October, happened in the early hours of the morning, UK time. Despite the 9 per cent fall, sterling quickly recovered against the dollar.
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