“The most popular was that computer-driven algorithmic systems – known as algos – were the cause because they are programmed to sell the pound on negative Brexit headlines. According to this theory the algos had picked up on a report in the Financial Times quoting the French president, François Hollande, as saying that Britain would have to suffer for the Brexit vote in order to ensure EU unity.
Kathleen Brooks, the research director at the financial betting firm City Index, said: “Apparently it was a rogue algorithm that triggered the sell off … These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter – so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for the pound.”
“Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure.”
“A definitive answer may never emerge, because the foreign exchange market has no central trading system, which makes it difficult to track deals.”
“This highlights the drawback of machines making trading decisions. However, it is the reality, and it is only getting more popular. Thus, another flash crash is possible. If there is , the pound is vulnerable because such unstable forces are driving it.”