Tuesday, 23 February 2016

Pound Falls

The pound suffered its biggest drop in more than six years on Monday [23-Feb-2016], as fears that the U.K. will leave the European Union intensified after London Mayor Boris Johnson came out in favour of a “Brexit”.

Now that was the sort of headline we got this morning from the media in connection with yesterdays drop and I wonder how four months before a vote takes place and the possibility of people changing their minds several hundred times during that period anyone can give credence to the suggestion that the pound was affected by this current situation.

So why did the pound drop?

Perhaps we should remind ourselves of a recent global financial crisis and foreign exchange scandal.

The forex scandal [also known as the forex probe] is a financial scandal that involves the revelation, and subsequent investigation, that banks colluded for at least a decade to manipulate exchange rates for their own financial gain. Market regulators in Asia, Switzerland, the United Kingdom, and the United States began to investigate the $5.3 trillion-a-day foreign exchange market [forex] after Bloomberg News reported in June 2013 that currency dealers said they had been front-running client orders and rigging the foreign exchange benchmark WM/Reuters rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmark rates are set.

It seems to me that yesterdays drop was caused by a few as there could be no evidence that everyone has made their mind up today on what they are going to vote on 23-Jun-2016.

Another reason could be simpler and yesterday's fall reverses the gain made last Friday when the PM David Cameron returned from Europe with a deal for Britain that would be good enough for us to stay in the EU. The status quo has been achieved.

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