Sterling’s rebound came hours ahead of a vote in Britain’s parliament which is expected to soundly reject a “no deal” Brexit. If so, a further vote will determine whether London should ask the EU for more time beyond March 29 to sort out its departure from the bloc.
“The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential,” said Fawad Razaqzada at Forex.com.
“If it feels like the UK government is going around in circles, it is because it is,” he added.
Sterling, and also London’s stock market, had taken a brief knock after MPs rejected a Brexit withdrawal deal by Prime Minister Theresa May for a second time, despite her obtaining last-minute added reassurances from EU officials.
But both recovered as the European trading day wore on, with the pound up more than 1% against the dollar on the day, and its progression against the euro only marginally less vigorous at 0.9%.
“The pound has been the main area of volatility when reflecting Brexit developments, with the FTSE 100 remaining somewhat stable despite the constant shifts,” said Joshua Mahony, senior market analyst at IG trading group.
Sparking the pound’s rally, meanwhile, was “markets either sniffing an opportunity for a second referendum or a deal passing,” said Viraj Patel, a foreign currency and macroeconomics strategist at Arkera, in a tweet.
Both the pound and the FTSE held up even as Britain’s finance minister Philip Hammond slashed the forecast for economic growth this year due to Brexit uncertainty.
The UK economy is forecast to grow by 1.2% this year, down on the government’s prediction of 1.6% in October, Hammond said as he gave a budget update.