The British pound went crazy again Tuesday morning as volatility in the currency continues to ramp up ahead of the UK's June 23 referendum on whether it stays in the European Union.
In Asian trading, at about 5:05 a.m. BST (12:05 a.m. ET) sterling strengthened massively against the dollar to $1.4583 from $1.4480, moving higher in a straight line, before instantly starting to fall once again. From 6 a.m. to 9 a.m. BST (1 a.m. to 4 a.m. ET) it appeared to have settled near $1.452, a gain of about 0.5% on the day.
But it surged once more just after 9 a.m. BST, and near 9:30 a.m. it was higher by 0.93% against the dollar to $1.4577. It is thought that the pound's initial spike was caused by a "fat finger," or mistaken, trade in Asia. Since mid-morning sterling has calmed down once again, and just after 1:45 p.m. BST (8:45 a.m. ET) is up around 0.8% on the dollar.
Here's the chart showing just how wild sterling's ride has been so far on Tuesday:
Market consensus seems to be that the early morning move was caused by a fat-finger trade, whereby a trader punches in a transaction incorrectly, which can in turn trigger automatic orders, known as stops, to sell or buy currencies. A trader from one City of London trading firm told Business Insider the person thought the trade was a fat-finger mistake. It is unclear by whom the error was made.
In normal trading hours, given how liquid the GBP market is, it is unlikely that a single mistake would move the market so massively, but liquidity is substantially lower in Asian trade, which makes triggering a stop far easier.
Earlier, there was some suggestion that a poll on the referendum released late Monday by YouGov that showed the Remain campaign maintaining a lead over the Brexiteers may have caused the move. The poll reversed forecasts from earlier in the day, which showed the Leave campaign moving into the lead. YouGov's poll was released more than six hours before sterling's jump, however, so it seems unlikely to have been the catalyst.
Given the crazy volatility of the pound in the past few weeks — it is at its most volatile since the financial crisis — a fat-finger trade couldn't have come at a worse time.
The pound has been particularly sensitive to polling data in recent weeks, often moving as much as 1% — a substantial shift for any currency — when new data shows a change in voting intentions. Last Tuesday, the pound dipped 0.9% lower against the dollar after a poll showed a big move toward the Leave campaign. On the other hand, on May 24, the pound surged after an ORB poll showed Remain pulling ahead.
Predictions about what could happen to the pound if Britain does vote to leave the EU have been stark. The Bank of England expects a big fall in the currency, while Joe Rundle, the head of trading at ETX Capital, says his firm is planning for "a 20% fall in Sterling and a 20% rise in dollar, so a 40% move" as soon as a vote for Brexit is confirmed.
As Business Insider reported recently, trading firms like ETX are trying to stop customers from making risky trades in the run-up to the referendum in a bid to ensure that firms don't go out of business if there are wild swings in the market after the result.
There have also been warnings that the UK leaving the EU, as well as sending the pound massively lower, could bring into question Sterling's status as a global reserve currency. The ratings agency Standard & Poor's said in a note in May that a "UK departure from the EU could put sterling's reserve status at risk by deterring foreign direct investment and other capital inflows into the UK."
