After months of campaigning, UK has finally decided to leave the European Union. A risk-off mentality has now gripped financial markets around the world as investors and traders wait to find out what the next step is for the UK and the rest of the EU.

The pound has suffered the most from the Brexit decision. At time of writing, sterling is down by 8% against the dollar at $1.365 after hitting a high of $1.50 in overnight trading. The euro is up 5.8% against the pound at 0.81c to the £1.

There’s still plenty of time to sell sterling

Uncertainty prevails in the markets, and it’s unlikely investors will see any quick answers about the next steps in the divorce process and the UK’s future status within the EU. The UK’s Prime Minister, David Cameron, has already announced his intention to step down in October; Scotland has hinted that it may undertake another referendum and lawmakers across the European block have expressed their desire to push away from the UK as fast as possible.

Earlier in the year, Cameron claimed that an ‘out’ vote would result in the triggering of Article 50, the legal mechanism for member states to withdraw from the EU and that this process would begin ‘straight away.’ A triggering of Article 50 would likely start an unstoppable process of exit from the EU, in which the UK is placed at a significant disadvantage during renegotiations with only a two-year window to conclude an exit agreement.

Most Wall Street analysts have concluded that the UK’s decision to leave the EU is negative for asset prices and if Deutsche Bank is to be believed there is still money to be made from the most popular Brexit trade; shorting the pound.

Follow the money

As I wrote yesterday, the consensus Brexit trade revolved around sterling with many independent economic research outfits, the UK Treasury and the Bank of England all warning that sterling could fall in value by a low to mid-teens percentage if ‘leave’ wins the vote.

The pound has already declined by more than 8% against the dollar this morning, and there could be further declines to come. In the run up to the UK Treasury reported that it was modeling a decline in the value of sterling of 12% to 15% if ‘leave’ prevailed; the OECD expects sterling to decline 10% and; Oxford Economics has forecast a decline of 15%. The Financial Times reported that Michael Saunders, a Citigroup economist soon to join the Bank of England’s Monetary Policy Committee, believes Brexit would probably trigger a 15% to 20% sterling depreciation against Britain’s main trading partners.

Further to go?

Deutsche Bank has come out this morning with a flash research note claiming that 1.30 and 0.85 are realistic levels for GBP/USD and EUR/GBP to clear respectively in the coming days with risks skewed to the downside. The bank’s foreign exchange analysts note that the initial gap lower in sterling has been primarily driven by market positioning and liquidity, however:

“The medium term implications of Brexit on sterling have yet to be felt. The UK’s record current account deficit means the currency is the in the worst possible position for the severe slowdown in capital inflows that will result from uncertainty generated by the result today.” — Deutsche Bank 

Furthermore, sterling downside could be exacerbated by additional Bank of England easing (see: Brexit Could Lead To More QE For The UK). With all these downside risks now weighing on sterling, Deutsche Bank is lowering its year-end GBP/USD forecast to 1.15 another 2000+ points lower from current levels. So, there is still plenty of time to short the pound and cash in on Brexit.