The British pound is higher against the Australian dollar on Wednesday.
Some are attributing a “fat finger” like sudden spike in the Australian dollar to the actions of the Australian central bank in government bond markets. The sudden move over 200pips in a split second comes after a “flash crash” of a similar size yesterday.
The pound has been a top FX performer, albeit not always against the Aussie for the best part of two weeks. The biggest factor appears to be the new liquidity measures from the Fed that stopped panic selling the pound to get dollars to pay dollar-based liabilities overseas.
GBP/AUD was up by 154 pips (+0.76%) to 2.0389 with a daily range of 2.0160 to 2.0502 as of 6pm GMT.
GBP/AUD slid 200 pips in seconds after touching 2.05, falling to 2.03 before rebounding to stabilise just under 2.04.
British pound gains helped by Fed liquidity
London’s position as the largest centre for FX trading globally has been one of the causes for the pound to benefit most from the Federal Reserve’s recent new measures. The strength in Sterling came despite one of the biggest daily rises in the UK death toll from the coronavirus.
The Fed setup a new facility yesterday to allow foreign central banks to swap Treasuries for dollars. This is on top of swap facilities that allowed central banks to ‘swap’ other currencies for dollars. The result is that if big institutions need dollars, they can go to central banks and get them instead of selling other currencies in the ‘open market’.
Australian dollar falls despite “flash spike”
A flash spike in the Aussie looked possibly from a ‘fat finger’ trade wasn’t enough to put the Australian currency in the black for the day versus the pound.
As a reminder, a “fat finger” trade describes a mistaken trade. The name comes from a situation where a trader might accidently add a zero or two to an order ticket, press the button and it gets filled in the live market, causing an abnormal spike in the price because of its size.
