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By Patrick Graham
LONDON Oct 7 Sterling plummeted as much as 10
cents in just a few minutes of Asian trading on Friday, a "flash
crash" that fuelled concerns about the vulnerability of the
British currency while adding to the allure of the country's
The pound recovered from the fall, which took it as low as
$1.1491 and was driven, dealers said, by the automated
algorithmic computer trades that now dominate the global foreign
But it was still down 1.4 percent on the day and trading
below $1.25 for the first time since 1985.
Gains in shares of internationally focused UK firms, which
boost overseas revenues and competitiveness every time the
currency falls, drove the FTSE 100 index half a percent
higher while other European stock markets fell.
Sterling's battering, however, added to pressure on UK
government bonds, pushing 10-year gilt yields 9 basis points
higher to 0.951 percent, their highest since the days after
Britain voted to leave the European Union on June 23.
"We can dismiss what happened in Asia, but the bias for
sterling's performance remains downward," said Neil Mellor, a
currency strategist with Bank of New York Mellon in London.
"The speech by (Prime Minister Theresa) May this week thrust
the prospect of a 'hard' Brexit upon the market. The fact is
that the bias to the downside is going to remain there until we
see some details from the negotiating table."
Sterling has been falling steadily for a fortnight, hurt by
concerns among investors that the government's intention to
prioritise immigration controls over access to the single market
in exit talks will spark deeper cuts to foreign investment in
Major custodial banks and asset managers say pension funds
and other big long-term fund investors have responded by buying
British shares and other assets while hedging the currency risk
through options and other derivatives that allow them to sell
The worry is that at some stage the broader political and
economic concerns that are afflicting sterling begin to bleed
into a more general sell-off of UK assets.
"The combination of collapsing currency and concerns about
fading monetary support for the UK asset markets could stoke
fears about a balance of payment crisis and a disorderly selloff
in the pound," analysts from French bank Credit Agricole said in
a morning note.
(Additional reporting by William Schomberg, Atul Prakash and
Anirban Nag; editing by John Stonestreet)