Front running? It’s all in the Fix
Talking of volatility, there was a huge turnaround in the GBP and AUD during my brief break for lunch yesterday. I can’t remember the last time I saw cable gap like this but even I recognised that the initial reason suggested for the move was complete rubbish.
The fall of sterling was attributed to rumours of the resignation of British Prime Minister Gordon Brown. Surely, I thought, if the one-eyed Scottish idiot, as one local TV presenter harshly described him, had gone, then sterling would have gone bid. A similar thing happened back in prehistory when Margaret Thatcher resigned. As we all know, change can breed optimism.
But the truth was more prosaic. It seems that the moves were a result of a breakdown in the proposed alliance between Rio Tinto and Chinalco. This resulted in the hedge being unwound in the London Fix at 1pm yesterday.
Funnily enough, only this week I was asked if front running occurred in FX, a subject I’ve written about before. I know what the official answer is, but every picture paints a thousand words. In a rare mood of altruism, I’ll avoid charging my esteemed editor for around 900 of them and avoid naming the bank that did the order. Instead, just look at the graph.
See previous coverage: