The British pound soared as markets welcomed British parliament’s rejection of a no-deal Brexit on Wednesday night that paves way for a an upcoming vote on Brexit delay on Thursday.
The pound had been climbing against major currencies during the day and was trading at 1.3221 against the U.S. dollar and 1.1671 against the euro just before the parliamentary vote began at 1900 GMT. It surged by 2.13 percent against the U.S. dollar at 1.3353 and 1.7 percent against the euro at 1.1781 in two hours after the vote.
The pound’s jump came after it sank on the defeat of May’s revised Brexit deal at the parliament on Tuesday, which opened the door to the vote on whether the lawmakers would support a no-deal Brexit on Wednesday. The market was optimistic that the no-deal option could be averted.
The British currency has been volatile during the week with a series of Brexit-related parliamentary votes held to decide the final path of Brexit. Brexit has been the main driver for the Pound this week, according to TorFX, a currency transfer provider.
The pound rose strongly after May said on Monday she had secured “legally binding” changes from the EU to the Irish “backstop”, which means the insurance policy designed to avoid a hard border in Ireland, could not “become permanent”.
However, it shed all the previous gains since earlier Tuesday when British Attorney General Geoffrey Cox said the legal risk of the UK being tied to EU rules after Brexit “remains unchanged”, and the country would not be able to leave the “backstop” without EU agreement.
Though lawmakers voted down a no-deal Brexit, May warned that the legal default in EU law remains that “the UK will leave without a deal unless something else is agreed”, but the EU has been clear that the deal on the table is the only one available.
She said the government could continue negotiations or have a second referendum, but this would damage the trust between the British public and the parliament.
Commenting on the vote, Miles Celic, Chief Executive Officer of TheCityUK, said: “MPs have said ‘no to no deal,’ but without an agreement between the UK and the EU, this vote sadly delivers very little.”
“A constructive and practical way forward must be found. Unless the Withdrawal Agreement or some other realistic course of action is agreed very soon, the UK will still crash out, regardless of MPs’ wishes,” Celic said.
A vote on a possible delay to Brexit on Thursday is expected to pass but the pound will remain highly sensitive to Brexit turbulence, according to TorFX. It believed following an extension of Article 50, there are again a series of possible outcomes, ranging from no-deal, renegotiation, second referendum to Brexit abandoned.