The ongoing uncertainty about the results of the EU referendum is seen to be impacting both sterling and the U.K. economy. Sterling volatility currently is higher than at the time of the Scottish referendum debate and that highlights the uncertainty that the markets are concerned about, a strategist at BNP Paribas told CNBC.
"The market is nervous about what the future holds so if we know with a strong degree of certainty what the future holds then I think the sterling will do pretty well," Steven Saywell, Global Head of FX Strategy at BNP Paribas said.
He explained that the market is very short sterling and there are two ways of looking at it. "First, it is the largest short out in the G10 currencies and it is the largest sterling short since 2008."
This in turn has pushed sterling to very undervalued levels, both against the euro and the dollar, he explained. "Easy way of looking at this is currently euro/sterling is trading around 79, close to 80. What our fair value models are telling us is that it should be around 70. So that's a huge undervaluation of sterling. If we see a reduction in the uncertainty then the suggestion we would make at BNP Paribas is that sterling could actually rally."