The pound is the 'most undervalued major currency in the world and will rebound to its pre-Brexit levels'

Analysts at US bank Morgan Stanley say the risk of the UK leaving the EU without a trade deal has already been priced in by markets

Sterling has taken a battering since the EU referendum and some analysts predict it has further to fall (Getty)

The pound is the world’s most undervalued major currency and will rebound to its pre-referendum levels against the dollar before Brexit negotiations are concluded, analysts at have predicted.

In a research update published this week, Morgan Stanley’s leading currency strategist, Hans Redeker, said the pound is worth 15 per cent more than the $1.2544 it is currently trading at.

By the end of 2018, the bank predicts sterling will hit $1.45, a level it hasn’t reached since before last June’s shock result.

Morgan Stanley said markets have now priced in the risks related to Brexit, so there should not be any further falls after Theresa May triggers Article 50 as she is expected to do in March.

“Prime Minister May has already set out her plan for Brexit, which includes a chance of walking away if any trade deal is not desirable,” the bank said.

Even if the UK walks away without a deal and has to trade under World Trade Organisation tariffs – widely considered by economists to be a disaster for the country’s economy – this will come as no surprise to markets, according to Morgan Stanley.

“The UK is also currently in a positive situation on negotiating a trade agreement with the US. Brexit headlines will continue, but we believe [this] will have limited impact on GBP,” the bank said.

However, it did say that a “material downturn in economic data in an environment of a much stronger US economy could push GBPUSD lower.”

The prediction is far more optimistic than those of most other currency analysts. Deutsche Bank’s co-head of foreign exchange research earlier this month said sterling could tumble as low as $1.05 once the “incredibly complicated” nature of Brexit becomes clear.

Speaking about the upcoming Brexit negotiations, George Saravelos added: “Even though intentions are quite positive on both sides, we’re very concerned about the lack of time to complete a deal in two years, and we worry that negotiations will get stuck around this issue of the payment which the UK has to make to leave the EU, and things will stall quite quickly,” he added.

Mr Saravelos said Deutsche is expecting sterling to drop “below $1.10, down to $1.08 or $1.05”.