You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. A tough week for the pound, A tough night for the pound. The British pound was already under great pressure this past week, uh sparked by Prime Minister Theresa's May, Theresa May's timetable for Britain's withdrawal from the European Union and concerns it might prove to
be a hard Brexit. But then something happened. Just shortly after seven o'clock Eastern The pound dropped about six percent in two minutes, sparking Bank of England Governor Mark Harney to ask the Bank for International seven months to look and see what happened. Joining US now is Kit Jooks. He joins US from London, where he's global head of
Foreign Exchange Strategy at Society General. So Kit, I was sitting I was sitting here on the on the Bloomberg News set taking part in Dabria Asia for Bloomberg Radio and Television, and Sherry On from our Hong Kong office came out and almost at the very top of a report said the pound, it's down. It was crazy move. What happened? Well, you know, I was. I was definitely fast asleep. It's that's that's that's just after midnight our time, so no chance of my being awake with a seven
am morning meeting here. But the I don't know. You know, that time of day is when financial market liquidity it's thin or odd because THEO has just come in, so people have things to do. But there's not necessarily a lot of natural liquidity of people who want to say I'll take the other side. So if someone wants to sell a currency or anything, um, you know, the market needs someone to come on the other side and said, yeah, that looks cheap, I'll buy that lower down and um.
In this instance, whether someone put in a cell order at the wrong price, whether there was some some you know, whether a computer program did something to sell something at the wrong price too low or too much, or whether just just the weight generally of people being concerned about the UK use all week and by Friday morning there just wasn't any what you prepared to bid for something that someone settling, so the price tumble stumble stumbles, and
then everybody goes, Okay, I'll make you have a coffee. I'm not going to join this game and it gets out of control. But they'll they'll they'll look through it. But I'm you know, we'll call it that. We'll call it a fat finger or a flash crash. Um. But they're always the way around that the market was going before we started that. That's a feature of these flash crashes.
Kit chukes am I to believe that the central banks around the world, let's just leave the Federal Reserve out of this for a moment, are trying to devalue the currencies of their respective regions in order to promote economic growth. I don't think anyone's trying to devalue their currencies very much at the moment. They're trying very hard to make their currencies not go up. Marginally different kind of spin
on that for you. But at this point in time, you know, the European Central Bank doesn't want the euro to strengthen it having weakened the I noted that the authorities in Brazil said they thought it was about time the FED raised interest. It's as then, we really don't want our currency, which is the strongest currency in the last week in the world, to go up any further. Thanks so trying to get their currencies to weaken, you know, trying to prevent or hoping or wishing they wouldn't get
any stronger. The reason I put it in that in that context is I'm wondering whether you can make a case for the British electorate having done the work of a central bank by working to devalue the currency and also helped to stimulate exports and investment in the United Kingdom.
Definitely look you in I'm sure that somewhere in my undergraduate years, more years ago than I care to think about, you have looked at the situation and said, if you had a negative terms of trade shock, which the UK has decided to vote for in the UK government has has decided to make happen, you will naturally need fall
in your exchange rate to reach new equilibrium. I'm sure I can see a picture of that in a textbook in my mind, and we're trying to make that textbook work right now, and we're all pulling the same way.
So a week of pound is a necessary outcome of the terms of trade shock, which is what to me is what happens if you stick a spanner in the spokes of the of the wheel of your global trade partners ruin your significantly damage your biggest trade relationship, and sit there hoping you can stay on the bicycle without falling flat in your face. Now, Um, the dollar rally,
and of course that means other currencies are weakening. Uh, seems even more in place since this job support came in strong enough to solidify this view of a December rene hike. But we just had a guest, Uh, Tom Gimball from La Saul. It's an executive type hiring search firm, um say, echoed by Ethan Harris, a Bank of America Marylynn. She's been on an eighteen day trip around the world that for domestically and for a lot of people overseas. Now it isn't so much the Fed they're watching in
the next few weeks. It's the outcome of the election. And the idea seems to be if Donald Trump gets elected, look out because it's a huge uncertainty what would that mean for the dollar? Back to front for the dollar because you're the world's biggest reserve currency. If if if uncertainty about the economic outlook in the wake of the of the presidential election results in investors being skittish, scared
risk averse. They'll sell those Brazilian rayale, they'll sell Asian counties, they'll move out of all the assets that they've been buying that had higher yields, and they'll revert to the safest thing they know, which is something at the front end of the US Treasury curve that that's cash or cash like, and the dollar will go up, not down.
And that's the feature of the US dollar. So um, I would I would bet that the Donald Trump presidency is um is good for the dollar against the whole load of the world's biggest country, is bad for the Canadian dollar and the Mexican pay so which between them, nearly a quarter of the trade had waited the index of the US or nearly a quarter of US trade goes up north or south. Thanks very much. Kit Juke's global head of Foreign Exchange Strategy for Associate General, joining
US from London. This is Bloomberg