Pound soars after Boris Johnson suffers historic defeat over no-deal Brexit

'Markets see a Boris Johnson-led no-deal Brexit as the worst-case scenario,' analyst says

The pound rebounded as parliament voted through a motion paving the way for legislation to block a no-deal Brexit.

Sterling continued to climb against the dollar following a dramatic evening in Westminster, reaching $1.2141 on Wednesday morning a day after hitting a three-year low.

The currency had plunged to $1.1971, its weakest value since 1985 if October 2016’s flash crash is discounted, ahead of Boris Johnson’s showdown with MPs on Tuesday and amid speculation of a snap election.

The rebound began when the prime minister lost his Commons majority as Tory MP Phillip Lee crossed the floor to join the Liberal Democrats.

“For all the uncertainty that lies ahead, markets see a Boris Johnson led no-deal Brexit as the worst-case scenario and thus treat anything that undermines that as pound positive,” said Joshua Mahony, an analyst at IG.

Bipan Rai, of the Canadian Imperial Bank of Commerce, said: “There’s still a few hurdles to clear, but the risks to Brexit are slightly more two-sided now.

“We’re not ready to say that a no-deal Brexit is out of the picture, but a squeeze could see momentum build for a constructive pound in the next few sessions.”

Tuesday evening’s vote means MPs can seize control of the Commons agenda on Wednesday afternoon to force through a bill requiring the prime minister to request an extension in Brexit talks to 31 January unless he secures a deal with Brussels or parliamentary approval for no deal by 19 October.

A Bloomberg survey last month found a delay was one of the most positive outcomes for the pound, and could push it up to $1.26. Sterling has tumbled almost 19 per cent since the EU referendum in June 2016.

The government’s defeat by a margin of 328 to 301 on Tuesday leaves Mr Johnson’s Brexit strategy in tatters by potentially robbing him of the threat of no-deal, which he has repeatedly said is essential to obtain concessions from the EU.

Responding from the despatch box immediately after the result, the prime minister said he would table a bill to trigger a general election, with a vote expected to take place soon after the anti-no deal bill completes its passage through the Commons on Wednesday.

But Mr Johnson’s plans seemed doomed to failure after Labour said it would not back his election motion, which requires a two-thirds majority and is therefore dependent on opposition support to pass through the Commons, until the legislation to stop no-deal is passed.