I always think that a flexible exchange rate is better at lowering damages from mispricing as it has a self-correcting system. Recently the British sterling has very volatile fluctuations, it could be seen as a systematic self-correction.
It was odd when the value of the sterling had quickly recovered from the news of the referendum result and many people, including me, seemed to underestimate the effect of the decision of Brexit. Once the new Prime Minister May raised the probability of a hard Brexit and the response of the European Union to Brexit seems they want to set Britain as an example and punish Brexit in order to avoid more leaving the European Union. Such response will cause a damage to the British future economy and many businesses may consider to leave Britain to the continent in order to continue to enjoy the single-market system.
As the value of the pound sterling depends on the characters of the British economy and the expected future performance, when the expected British economic performance could be damaged by Brexit, the pound sterling depreciates.
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