Here’s what could happen to the pound when Article 50 is triggered

The UK government is on the brink of triggering Article 50 which would mean the start of official cases for leaving between Britain and the European Union.

While we expect near term GBP negativity, note the macro-economic challenges ahead are tough, we would assume that both the Treasury and the BoE are now too optimistic upon growth we do not necessarily expect aggressive fresh sterling extremes.

Sterling has witnessed a roller-coaster ride in 2016 as the currency plunged to levels not seen in more than a generation on the back of the Brexit vote. While the initial moves were dramatic, plunging from the highs of $1.50 to a 31-year low of $1.32, the pound continues to remain under pressure at current levels of $1.22. The currency is down more than 17 percent since the referendum day.

Kallum Pickering, senior UK economist at Berenberg, explained that the value of sterling remains the best barometer of market sentiment. If May takes a non-confrontational approach and signals a desire to maintain a high degree of openness to the UK for EU workers, markets could react positively in the coming months.

Some market pundits also think that sterling will rebound since there is greater clarity on the issue now.

"We expect that GBP will begin a steady rebound from depressed levels. Greater clarity surrounding the negotiations will prompt a stronger currency."

Mark Weeks, chief executive officer at ETF Securities, warned that uncertainty surrounding Scotland and any negative news surrounding negotiations will cap the GBP's gains in coming months.

Source CNBC

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