GBP abnormal shock's impact to the markets

If the drop of the GBP is actually made by the algorithm, then today’s sharp was an accident, which may not have presented the real market view on the GBP’s value. However, such drop has definitely changed the market view on the value of the sterling, as when the price drops, people would have raised the question that if the sterling has any possibility to be at such a low point. The answer is definitely a yes, as if the British government fails to negotiate a relatively beneficial deal with the EU, the British economy will suffer and the sterling will devalue sharply. Though the algorithm traders are here to be blamed, once such argument appears in people’s mind, they will reduce their expectations of the GBP values.

Moreover, the sudden drop would frighten the markets as a whole. Firstly, it shows how damaging a fault in the trading algorithm could cause to the markets, people may fear such a thing could happen again in a wider range of markets. Secondly, the GBP’s depreciation means appreciations of other currencies, which causes a wide fall in the markets. Usually a currency’s appreciation could lead to a market fall. Therefore, a global scale of the market dropping is not abnormal to happen.

I think such shock occurred to the market, could last for another week, but the market will recover from the abnormal and move in its direction independently from the British future possible economic performance.