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British pound's 'flash crash' caused by more than a 'fat finger': FX strategist

The British pound's plunge on Friday could have resulted from more than just a "fat-finger" accidentally entering a trade, strategist Boris Schlossberg said.

Schlossberg told CNBC's "Squawk Box" that hard-hitting comments from French President François Hollande caused a dip in the pound, but with low liquidity in the market and option barriers set too high, "it just became a vortex."

Hollande on Thursday spoke at a dinner with European Union leaders about the need to remain tough in negotiations over Britain's "hard" exit from the trading bloc.


The pound fell more than 6 percent against the dollar Friday morning, but recovered about two-thirds of that decline later in the session.

"In electronic markets, human traders always forget just how much magnitude and speed happens when computers are involved, and we always underestimate the power of the move," Schlossberg said about the fat-finger theory.

As for effects of the flash crash, huge hits to both confidence and market prices could have adverse effects if they remain low for much longer, said Schlossberg, managing director of foreign exchange strategy for BK Asset Management.

"It's sort of like a country crisis as opposed to a currency crisis in what's going to happen to British investment, what's going to happen in the long-term to the British economy," said Ken Rogoff, Harvard professor of economics and public policy.

Because long-term effects are tied to how Britain's government envisions the future of the country and how the Euro fares over the next several decades, Rogoff finds them difficult to predict.

"But in the short run, it just can't be good to go through this, to have to renegotiate all your trade agreements," he said on CNBC's "Worldwide Exchange."

Rogoff and Schlossberg agreed that Britain will need to maintain its status as a global financial center to sustain a "hard" Brexit.


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