Sterling posted its biggest increases in six months on Wednesday morning after parliament voted to block the prime minister taking the UK out of the EU without a deal.
The currency hit $1.2347, its strongest value in a week, just before 11.20am UK time. That followed an overnight surge of 1.4 per cent, its biggest one-day jump since March.
“It is all about politics in the markets at the moment,” said City Index analyst Fiona Cincotta. “As the Boris Johnson government has progressively lost control of the situation, so sterling has rallied.
“It now looks more likely that a coalition of rebel Conservative MPs and opposition parties will take a no-deal Brexit off the table with legislation, which was what the markets were hoping for.”
The pound has been shunned by investors in recent weeks amid growing fears the UK was set to crash out of the EU without a deal. Sterling plunged to its lowest value against the dollar in nearly three years on Tuesday as speculation swirled that the prime minister was planning to call a snap election.
But on Wednesday parliament voted to block a no-deal Brexit and Mr Johnson was defeated in the Commons over his bid to force a national vote which could have restored his power in Westminster.
The pound rallied further as Lords agreed to rush through a backbench bill which could force the prime minister to seek to push back the UK’s scheduled 31 October departure date by three months.
Analysts predicted delaying Brexit could lift the pound up to $1.30, a four-month high.
“A delay for both Brexit and general election will continue to send the pound higher,” said Neil Jones, head of hedge-fund currency sales at Mizuho Bank.
Despite the rebound, the pound remained more than 8 per cent below March’s 2019 highs of nearly $1.34 amid fears an election is the only way to break the political deadlock.
“However, with the results from any election so hard to forecast and the difficulty of still fixing on a deal, we think further pound rallies are likely to be limited until we have clarity on outcomes,” said John Marley, a senior consultant at Smart Currency Business.
Against the euro, the pound gained 0.3 per cent to 89.74 pence on Wednesday.
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