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Dollar weakness helps sterling recover after ‘flash slip’

Renewed pressure on the dollar helped the pound to pick up on Friday morning, with sterling recovering most of the losses sustained in a sudden sharp fall yesterday evening.

The pound was the biggest victim as the dollar jumped against a range of currencies at around 6pm BST on Thursday, dropping as much as 0.8 per cent in the space of a few minutes.

However, broad dollar weakness (the dollar index that tracks the buck against a basket of peers is down 0.2 per cent) meant the pound had recovered most of the losses by publication time.

It was 0.36 per cent stronger for the day, at $1.2985. That is still weaker than the highs hit after strong retail sales data yesterday, but stronger than the level it started at on Thursday.

The rising importance of algorithmic trading in financial markets has made “flash events”, when there is a sudden and inexplicable rally or fall that is often quickly reversed, increasingly common.

In October the pound dropped as much as 9 per cent in less than a minute during a period of particularly poor liquidity in early morning trading in Asia.

Kit Juckes at Société Générale, who described yesterday’s fall as a “flash slip”, said “I have no idea why this happened but it continues to throw out warnings about what is happening to market liquidity in general outside peak trading hours”.