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TOKYO (Reuters) – Sterling seized center stage in early Asian trading on Friday, plunging to fresh three-decade lows in thin conditions as a break of key technical support levels triggered wave of stop-loss orders.
The pound suddenly dropped as low as $1.1378 on some trading platforms. But it immediately pared its losses, suggesting market participants rushed to buy it back. It last traded down 1.3 percent at $1.2454.
“Low liquidity amplified the move. People suspect a ‘fat finger’ triggered stop-loss orders,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Sterling has been wallowing at its lowest levels since the mid-1980s this week, on track for a weekly loss of 4.2 percent, as investors feared the impact of Britain’s pending exit from the European Union.
“The move coincided with an FT story about French President Hollande demanding tough Brexit negotiations. The move was exacerbated once stops were tripped below a key level of $1.2600 in very thin trading before the U.S. payrolls,” said Su-Lin Ong, senior economist at RBC Capital Markets.
The pound came under renewed pressure on Thursday, against a backdrop of anxiety about a “hard” exit by Britain from the EU and about Prime Minister Theresa May’s comments on the impact of loose monetary policy, which some saw as a thinly veiled attack on the Bank of England.
“This is still the thinnest time of day for anything pretty much, the gap between New York and Tokyo. It’s probably the time of day where you’ll get the sharpest move for the smallest amount of selling but really we didn’t see a news catalyst for it,” said Sean Callow, senior currency strategist at Westpac .
Sterling has been “on a precipice since Sunday, since Theresa May and the March Brexit negotiations,” he said, adding, “I think we’ve underestimated how many people had money positions for a very wishy-washy Brexit, or even none.”
Other currencies traded in more familiar ranges ahead of the U.S. nonfarm payrolls report later in the session, which could cement expectations for an interest rate hike by Federal Reserve this year.
The employment report is expected to show U.S. nonfarm payrolls rose by 175,000 jobs in the month, according to the median estimate of 100 economists polled by Reuters. A strong report would increase bets that the U.S. central bank is gearing up for a hike in December.
The dollar edged down 0.1 percent against the yen to 103.84