Sterling was in a resilient mood on Wednesday, holding onto gains ahead of a Parliamentary no-confidence vote on Theresa May’s Government.
The pound was trading broadly flat versus the US dollar and euro at 1.285 and 1.127 respectively, as MPs once again prepare to cast their ballot.
It comes after a day of drama as Mrs May’s authority was on Tuesday eroded further, losing a key vote when 230 fellow MPs rejected her Brexit Withdrawal Agreement.
However, sterling traders appear to have interpreted the result as Brexit being kicked into the long grass or cancelled altogether, a view that persisted on Wednesday.
Fiona Cincotta, senior market analyst at City Index, said: “Trades are taking an optimistic view of Theresa May’s historic defeat last night.
“The deadlock is so apparent in Parliament and the result so dire that traders view the chances of a no-deal Brexit as greatly reduced. Extending Article 50 and/or a softer version of Brexit, or no Brexit at all are the most viable options now, in the eyes of the market.”
Bank of England governor Mark Carney also chimed in, saying the pound’s rebound after the Commons vote signals market hope that Brexit can be delayed, but warned over further volatility.
In a hearing with MPs on the Treasury Select Committee, he said financial markets also saw the prospect of the UK crashing out the EU without a deal as having waned.
However, Mr Carney said he did not put “much weight” on short-term market movements and that the market is “waiting”.
Mrs May is likely to survive the challenge to her premiership as Tory MPs, aided and abetted by the DUP, baulk at the idea of a general election and the possibility of Jeremy Corbyn as Prime Minister.
But with the Conservatives obliged to come up with a Brexit “Plan B”, the pound could yet be in for a rough ride.
“Sterling spent the day acting as if it didn’t have a care in the world,” said Connor Campbell, financial analyst at SpreadEx.
“The currency is in for another rough night, however, as investors prepare for the no-confidence vote in Theresa May and, dun dun dun, whatever fresh Brexit hell its aftermath brings.”