Putting the use of the word ‘crisis’ in context

Last Friday September 23rd, the British Pound started seeing accelerated weakness against various currencies and most prominently against the U.S. Dollar. The ‘noise’ of calling it a crisis continued on Monday September 26th.

Readers of the September 24th edition (last week’s) of ‘Macro Extremes’ would have seen the GBP was already featured in the Oversold section.

From its close of 1.1256 on Thursday September 22nd it has fallen to an intra-day low of 1.04. Albeit a 7.5% move within 2 days is worthy of note.

Today, the GBP/USD is almost back to its price seen (1.1168) on that Thursday. Quite a roundtrip but hardly a crisis and more appropriately a reminder to taking a look if prices were already at an extreme and understanding if this is a continuation of an existing downtrend or an exhaustive move which catches the ‘noise-worshippers’ out?

On the week, the GBP/USD rose 2.8%.

Yet….we don’t hear the word ‘crisis’ being bandied about.

Some FX traders have lost 6% in a week, shorting the British Pound against the USD, at its lowest ever level.

Cleverly, I hope there were many bought Sterling at Sterling at what was nearly a 4-sigma event.

The previous all-time low vs USD was 1.0545 seen in March 1985.

Inversely, this past week we saw the Australian Dollar fall 3.1% against the Euro, it sank 4.7% versus the British Pound, declined 1.9% compared to the USD and has fallen 5.2% against the Yen in the past 3 weeks.

Once again, perspective and context is advised.

October 2, 2022

by Rob Zdravevski

rob@karriasset.com.au