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CME Halts British Pound Futures After Flash Crash to New Record Low vs the Dollar

September 26, 2022

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8:54 am

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59 comments

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Economics

British Pound flash crash courtesy of Investing.Com

Pound Pounded

The British pound fell to $1.0349 during early trading hours on Monday, breaking its previous record low in 1985.

This morning the CME temporarily halted the trading of British Pound futures following a Currency Flash Crash and Record Low in the Pound.

Cable reached ALL-TIME record lows (~4.5%) in the early hours of Monday’s Asian trade after an aggressive flash crash occurred due to thin liquidity to support the pound generally caused by a domino effect from electronic trading systems executing trades.
CME Group had to halt GBP futures trading as a result of the flash crash.
Two primary factors for this unexpected move are attributed to a combination of a skyrocketing US dollar (from last week’s 75bps rate rise), in addition to the UK’s mini-budget announcement which included several tax cuts that seemed to weigh heavily on the GBP.
The British pound was already facing negative sentiment from traders/investors on Friday, after the UK’s new chancellor Kwasi Kwarteng announced his new mini-budget that could widen the fiscal deficit.

British Pound Since 1991

British Pound chart courtesy of StockCharts.Com, but excluding the flash crash

From the record high of 2.116 in late 2007 to the bottom of the flash crash, the pound has fallen 50 percent vs the US dollar.

When a chart is at record lows, there is no technical support. At record highs there is no resistance.

How low the pound can fall is anyone’s guess.

Strong Dollar Fatigue: Japan’s Yen Intervention Will Not Work. How Can It?

On September 23, I noted a Japan’s intervention to support a collapsing yen, stating Japan’s Yen Intervention Will Not Work. How Can It?

Japan has intervened in the Forex markets to defend the Yen. Let’s discuss why that tactic will not work, and the irony of the process itself.

The UK and EU are at the mercy of Putin’s natural gas shutoff and their falling currencies exacerbate their energy woes.

Japan suffers from a central bank still holding interest rates in negative territory.

End of the 40-Year Bull in Debt and a “Global Depression” Threat

I have been discussing the possibility of a currency crisis for years, suggesting that Japan was a likely candidate.

For discussion, please see End of the 40-Year Bull in Debt and a “Global Depression” Threat

This post originated at MishTalk.Com.

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59 Comments

Newest

Oldest Most Voted

Scooot

4 years ago

The best thing the BOE can do is nothing. Raising interest rates in panic mode won’t work, as before, and nor will buying Sterling, that just provides a nice juicy bid for the market to hit. Gilt yields have soared as well, the 10 year Gilt is now at 4.25% v 2.60% a month ago and now about 38bp over Treasuries, so buying gilts with dollars has become considerably cheaper. Let both markets truly float and eventually natural bids will support them.

Webej

4 years ago

The UK and EU are at the mercy of Putin’s natural gas shutoff

Are they attempting to buy then?

No. I didn’t think so.

This is known as gas-lighting…

Esclaro

4 years ago

So how is that Brexit working out for you? It was supposed to be the salvation of the UK. Now Boris is gone and Nigel Farage is busy making gin in Cornwall.

Zardoz

4 years ago

Reply to Esclaro

They got their payouts, and are no longer needed.

TexasTim65

4 years ago

Reply to Esclaro

Don’t worry, Europe is on deck and will get theirs too. There is no place to hide.

MPO45

4 years ago

Reply to Esclaro

The British have a new King. No not King Charles, it’s King Dollar! Bow before your king!

Esclaro

4 years ago

Reply to MPO45

Not just the British. The whole world bows down before the dollar, the King Kong of fiat. DXY 120 here we come and then watch the entire world go up in flames!

Cocoa

4 years ago

Reply to Esclaro

Any senior currency gets a bid at the end run. Sterling, Spanish Peso, etc. Dollar could go way past 120, but thats bad for dollar as everyone is clearing their decks. The those dollars start getting converted to gold and silver as Mr. Margin slows down

ajc1970

4 years ago

Reply to Esclaro

EU about to have its worst winter since those of WW2

Not sure why you’re blaming UK’s current issues on Brexit, but they’re about to be pretty happy to be an independent island far from the real problems

8dots

4 years ago

It’s might be the end of the global commodities bust since the 70’s. In 1967 there was a Six Days War. Nasser closed the Suez canal, Soybean popped up ==>

In June 1973 Soybean peaked, a monthly trigger. In Feb 2008 Soybean closed above. Mar 2008 was a higher rigger. The next trigger was Sept 2012 high.

After a full decade, there is no close > Sept 2012 high…

It’s hard to dislodge Putin. It was hard to dislodge Covid.

ZZR600

4 years ago

Question is: where to hide in this mess? For a trader this volatility must be great, but for a regular investor, where to go? In cash that’s losing value? In stocks that are all over the place? Gold in GBP is holding up, but doing miserably in US$ and a few other major currencies.

TexasTim65

4 years ago

Reply to ZZR600

Where do you live? If you live in GBP, it’s fine to invest in gold right now since it’s holding up vs your currency and your bills / cost of living are in that currency.

ZZR600

4 years ago

Reply to TexasTim65

UK, but I’d have better off buying $US a few months ago!

TexasTim65

4 years ago

Reply to ZZR600

Of course! It’s easy to be a Monday Morning Quarterback.

Tony Bennett

4 years ago

Mortgages at 12 year high. Another bad day in bond market will move rates higher.

https://www.mortgagenewsdaily.com/mortgage-rates

vanderlyn

4 years ago

Reply to Tony Bennett

love it

vanderlyn

4 years ago

I WAS able to sell pounds in middle of night and this am, on FX spot market. where all the real action is. BIDEN BUCKS for me.

RonJ

4 years ago

Reply to vanderlyn

Yeah, but the real action is in Vegas. Seven come eleven. Place your bets.

vanderlyn

4 years ago

Reply to RonJ

i’m more of a racetrack fan. spent my youth at aqueduct and belmont. taught me great lessons for trading, which is gambling. the biggest gift was understanding the psychology of losers. losers win, by losing. hat tip to ed seykota who speaks to this in much depth.

RonJ

4 years ago

Reply to vanderlyn

Loved to listen to Trevor Denman call the races while at Santa Anita. Didn’t go to the track, that often though.

whirlaway

4 years ago

The British right-wing (which, like in the US, includes BOTH the major parties) still doesn’t realize (or, are being paid to not realize) that Reaganomics was a disaster for pretty much everybody in their country. Why else would they try even more of it, at this time?

vanderlyn

4 years ago

Reply to whirlaway

99% of amerikans still don’t get Raygun was a con man like Rump is .

whirlaway

4 years ago

Reply to vanderlyn

Yes. And they also don’t get that BJ Clinton (who made more of Reagan’s wet dreams come true than any Republican President ever did) and 0-bama were bigger con men than Trump ever was, or could be.

vanderlyn

4 years ago

Reply to whirlaway

agree. rump is a piker con man. compared to raygun and slick willie. rump is much funnier though. he knows the secret to small time cons, like PT barnum did. people love to be HAD, if it’s just for small amounts. brilliant.

Zardoz

4 years ago

Reply to vanderlyn

A moron president for a moron country. He was perfect.

Captain Ahab

4 years ago

Reply to whirlaway

BJ Cigar was a flop until Gingrich’s contract came along. A little blackmail, and Clinton signed off, and took the credit. Then, sold out the US with giving China most-favored nation status.

RonJ

4 years ago

Reply to whirlaway

Such a disaster, that he was re-elected in a land slide in 1984. Ultimately, it was Johnson/Nixonomics that got him elected in 1980.

Every boom ends in a bust. A boom is a disaster, but everyone loves a boom.

whirlaway

4 years ago

Reply to RonJ

Not talking about booms and slumps here, but the long-term implications of what he did.

As for getting re-elected, even BJ Clinton and 0-bama got re-elected, with the latter winning easily in 2012. So?

vanderlyn

4 years ago

Reply to whirlaway

agree

RonJ

4 years ago

Reply to whirlaway

The long term implications of Social Security and Medicare were bankruptcy.

A boom is a con job, as it ends in a bust.

The economy was doing well in 1984, which is why Reagan won in a landslide.

vanderlyn

4 years ago

Reply to RonJ

raygun was a con man. if you cannot handle that, seek help. or a bottle.

RonJ

4 years ago

Reply to vanderlyn

Congress is full of con men and women.

whirlaway

4 years ago

Reply to RonJ

And Reagan was the big daddy of them all.

Not to spare the DONORcrat leaders. They would looooove to have a picture taken of them standing next to a Reagan portrait, but would not get caught dead being in the same room as Ralph Nader.

Zardoz

4 years ago

Reply to RonJ

Do you have any responses that aren’t whataboutisms?

Suck is suck.

Tony Bennett

4 years ago

Reply to whirlaway

Voodoo Economics

RonJ

4 years ago

Reply to Tony Bennett

It is all voodoo economics. 100% of booms end in a bust. Even the U.S. post WW2 boom, ended in a bust, as the economies shattered by the war, recovered.

vanderlyn

4 years ago

Reply to whirlaway

the amerikan poodle really got dumbed down past few generations.

StukiMoi

4 years ago

Reply to whirlaway

“The British right-wing (which, like in the US, includes BOTH the major parties) ..”

Those darned right wingers; who doubled the size of government…… Right wingers every one of them…

JRM

4 years ago

Reply to whirlaway

British Right wing is LEFT wing in the USA!!!!

MPO45

4 years ago

Did someone say trading halt? Just as I expected and commented here. There will be trading halts in the US when the panic hits at some point next year but it could happen sooner. Got PUTS?

Does this qualify as “breaking something” Tony Bennett?

Steve_R

4 years ago

Reply to MPO45

Be careful, $dxy dropping fast, short squeeze coming

Tony Bennett

4 years ago

Reply to MPO45

No. Forget Europe.

The Crisis WILL start in Asia.

Despite moves by their central banks to prop currency, the yuan and yen are still depreciating against $US. Their depreciation taking down rest of the Asian currencies / economies. Nothing broken yet, but getting very close.

https://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

TexasTim65

4 years ago

Reply to Tony Bennett

The crisis will start in all the emerging countries who borrowed in US Dollars because they could not borrow in their own currencies (very high rates due to default risk which is going to happen anyway). They will be unable to pay due to their own falling dollar and get hit with a double whammy when they find interest rates on refinance are suddenly 6-8% instead of 1-2%.

Yes, this includes some Asian countries but don’t forget all the usual suspects in South and Central America.

Tony Bennett

4 years ago

Reply to TexasTim65

Possibly.

Sticking with Asia, though. $US currency paired with Asian currency charts look worse (stronger) than Americas. Asian stock markets getting rocked. Back in 2008 China stock markets fell hard before US went down hard. What goes on in Asia more relevant to US.

MPO45

4 years ago

Reply to Tony Bennett

Not sure what to make of all the reports of a coup in China. Things getting interesting and I’m low on popcorn.

KidHorn

4 years ago

Reply to TexasTim65

it will spread to the US. They’re going to liquidate their USD holdings to raise USD to pay interest. Japan is currently selling long dated US treasuries to support the Yen. Have about a trillion to go. Coupling this with FED QT will annihilate our bond market if it continues.

TexasTim65

4 years ago

Reply to KidHorn

Selling US dollars pushes the price of the US dollar down. For those countries that is a good thing. Also helps our export market too.

KidHorn

4 years ago

Reply to TexasTim65

Increasing the supply of treasuries pushes up interest rates. Which I think is a bigger issue than the Yen/USD exchange rate.

JRM

4 years ago

Reply to MPO45

Have you not been paying attention to how the US stock market trading is done???

When US markets plunge a certain percentage than trading is stopped!!!

I believe first stop is for 15 minutes and if it continues to slide, the second stop is done for 30 minutes!!!

Captain Ahab

4 years ago

“Are we there, yet?’

Imagine, a woman being right 🙂

In the rush to lose control, what’s next? Does global pressure on Powell to ‘print’ dollars stop QT in its tracks?

KidHorn

4 years ago

A strong USD increases the debt load of a lot of countries. Countries that are drowning in debt.

Japan is selling long dated treasuries to support the Yen. Will push US mortgage rates even higher.

oee

4 years ago

Reply to KidHorn

It their fault of their elites who borrowed dollars to have a lavish lifestyle. Why do the borrow dollars? to have them parked in the US . Whom they borrowed the money from? US Banks? inquiring minds want to know.

TexasTim65

4 years ago

Reply to KidHorn

What’s worse is that a LOT of those countries borrowed in US dollars. They did that because they were unable to borrow in their own currencies (really high interest rates due to default risk) and/or because borrowing in US dollars at that time only cost 1-2% tops.

It’s hard to feel sorry for those countries because borrowing in another countries currency is madness.

I suspect a lot of defaults are going to happen next year and currency crisis will spread to more than just the UK and Japan.

KidHorn

4 years ago

Reply to TexasTim65

They had no choice but to borrow in USD. I believe all loans from the world bank/IMF are USD.

TexasTim65

4 years ago

Reply to KidHorn

Not everyone borrows from the IMF/World Bank. In fact only the most desperate countries do that. The rest borrow in their own currency.

Mish over the years has many times said borrowing from the IMF/World Bank is the absolute worst thing a country can ever do.

killben

4 years ago

“I have been discussing the possibility of a currency crisis for years, suggesting that Japan was a likely candidate.”

Yes.

But then you could not have guessed that UK will beat Japan to it. Next could be Euro – if they raise rates (if the Fed raises they have to else Euro will follow Pound), will there be a EU?

With inflation getting embedded in services in the US and other countries are tied to the US at the hip, looks like the train wreck is just beginning.

Unlikely many I do not think we will see ZIRP and QE again. Seeing 2008 scarred the Fed and other bunch of jokers oops central bankers. Seeing what inflation can do will likely have same effect.

Nothing like inflation to make the Fed to do the right thing – allow the market to stand on its own two feet. Simple but not easy.

mrutkaus

4 years ago

Phew! I thought at first it was a Coronal Mass Ejection!

One of those could halt a lot of exchanges.

whirlaway

4 years ago

Reply to mrutkaus

Gosh! Let’s hope we don’t have that anytime soon.

https://en.wikipedia.org/wiki/Coronal_mass_ejection

Zardoz

4 years ago

Reply to whirlaway

Engineers will be making doctor money if that happens.

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CME Halts British Pound Futures After Flash Crash to New Record Low vs the Dollar

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