Sterling could sink or soar 10% and is the ‘most interesting currency to trade,’ strategist says

  • Brexit has been a key factor moving sterling since the referendum vote took place in June 2016.
  • The currency is down about 13 percent since then.
  • Brexit negotiating teams want to reach a deal over their future relationship by October.

The British pound is set for some major volatility at the start of next year due to ongoing Brexit negotiations, one currency expert told CNBC Tuesday.

The currency could see its value drop by as much as 10 percent if the U.K. does not reach an agreement with the European Union over its future trading arrangements, Thanos Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch, told CNBC's "Squawk Box Europe."

"If we don't get a deal, sterling can be weaker by about 10 percent, (or) even lower. If you get a deal, any deal, …. (sterling) can be up by 10 percent. I don't think any other currency can have this kind of moves in the next few months," Vamvakidis added.

Brexit has been a key factor moving sterling since the referendum vote took place in June 2016. The currency is down about 13 percent since then. On Monday, the pound fell to an 11-month low against the dollar to $1.2920 amid growing concerns over Brexit and the risk that there won't be a deal. The U.K.'s Trade Secretary Liam Fox said Monday that the European Union is stubborn, and the chances of a no-deal stand at 60 percent. At the same time, trade tensions supported the greenback, which also contributed to the 11-month low.

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Brexit negotiating teams want to reach a deal over their future relationship by October to allow enough time for approval from parliamentary procedures. However, the biggest sticking points in the negotiations still remain ahead of a legal deadline – March 29, 2019 — for the U.K.'s departure. There's still no consensus over the Irish border issue as well as future trade arrangements.

"By early next year either we are going to have a deal and sterling is going way up or we don't, and sterling is going way down," Vamvakidis said, adding that "sterling might be the most interesting currency to trade in the next few months."