When Markets Beat Central Banks: The Untold Story of Black Wednesday

31 years ago this weekend (Sept 16, 1992), something unthinkable happened in forex markets—the Bank of England lost. Not to another country, but to traders. And I was there.

Back then, the Bank (the “Old Lady”) was untouchable. Central banks moved markets like gods moving chess pieces, no warning, pure shock value. But the ERM changed that—they had to announce intervention levels in advance. That single rule destroyed the fear.

Why Sterling Was a Target

The real problem? Political pride over economics. UK had 15% inflation (Germany: 5%), was in recession, but Sterling was priced like Europe’s strongest currency. Classic mismatch. By Tuesday Sept 15, GBP/DEM was pinned to the support level—and everyone knew it.

The Bank kept raising their minimum trade size: 5M → 10M → 100M pounds. Classic desperation move. But instead of scaring traders off, it just meant someone realized the Old Lady was vulnerable.

The Moment Everything Changed

Then came 4 PM on Black Wednesday. Every day they’d say “the bid goes to the Fed, then Australia, then Japan, back to us tomorrow.” Routine. Safe.

That day? Three words from the squawk box: “I don’t pay.”

Silence. One second felt like forever. No continuous bid. Market won.

The euphoria lasted about 30 seconds before chaos. Sterling crashed hard. We worked through the night—massive losses, massive gains.

The Real Lesson

George Soros took credit (genius marketing, honestly), but the truth? The entire market collectively realized central banks weren’t invincible. Soros had a big short, sure. So did Goldman, so did everyone else.

It was the first time traders beat a government. And it changed everything. Central banks stopped being Keyser Söze. They became just powerful players with constraints.

Politicians learned the hard way: if you set band parameters on fantasy instead of reality, markets will exploit it. Every. Single. Time.

That lesson? Still holds 31 years later.