“In 1992, George Soros, a billionaire investor and philanthropist, made a massive bet against the British pound. He believed that the pound was overvalued and due for a significant correction, and he decided to take a short position against it.
Soros and his team of traders began to sell large amounts of pounds, which put pressure on the currency and caused its value to drop. As the pound continued to fall, other investors and speculators also began to sell, accelerating the decline.
The Bank of England, which was responsible for maintaining the value of the pound, attempted to intervene by buying pounds in the foreign exchange market. However, its efforts were insufficient to counteract the selling pressure, and the pound continued to decline.
On September 16, 1992, a day known as Black Wednesday, the Bank of England was forced to withdraw from the foreign exchange market, and the pound was allowed to float freely. By the end of the day, the pound had fallen by more than 15% against the German mark and other major currencies.
Soros and his team reportedly made a profit of around $1 billion from their bet against the pound. The event became known as one of the most significant currency trades in history, and it made Soros a household name in the world of finance.
The aftermath of the event was significant, as it forced the British government to abandon its policy of maintaining the value of the pound within a narrow band against the European Exchange Rate Mechanism (ERM). It also raised questions about the effectiveness of central bank intervention in the foreign exchange market and the potential for speculation to influence currency values.”
Sourced from Chat GPT, assessed by Sean Lee
Postscript: Probably the craziest day of trading I have ever been involved in. Once the BoE pulled its bids, there was absolute carnage. If I remember correctly, the Central Banks of Sweden and Ireland raised their overnight rates to 10,000% to discourage any big short bets against their currencies. It had the desired effect!