Sterling shot higher after Parliament voted resoundingly against leaving the European Union in 15 days’ time without a transition agreement.
Parliament voted against the risk of a “no-deal” Brexit, 24 hours after a second defeat for Prime Minister Theresa May’s divorce agreement left Britain heading into the unknown.
MPs will vote again today on delaying Britain’s EU departure beyond March 29.
The pound strengthened on hopes of a delayed Brexit, a move which investors said could increase May’s chances of getting her deal with the EU through parliament or lead to Brexit being called off altogether if a second referendum is held.
“No to no-deal (on 29 March)! On reflection... a big win for the pound. A majority in parliament are choosing economic rationale over party politics and that reduces the odds of a disorderly Brexit,” said Viraj Patel, a currency strategist at Arkera, a financial technology firm.
“This is the only majority that we have on Brexit and increases the odds of getting certainty one way or the other, either through a deal or via a push to avoid Brexit altogether,” he added.
Sterling was up more than 1 percent against the euro and the dollar before the result but it surged higher after Mrs May said that MPs would vote on Thursday on delaying Brexit.
It has continued the surge this morning, up against all major currencies.
After the vote, at 7.50, the pound was up 1.5 per cent near the day’s high of $1.3280.
It was up 1 percent versus the euro at 85.48 pence, though remained below a 22-month peak of 84.755 pence touched on Monday before hopes for May’s Brexit deal to pass the second time round were crushed.
Sterling has swung wildly in the last 48 hours between $1.30 and $1.33 and at junctures it has been at its most volatile since the June 2016 Brexit referendum.
Most economists anticipate that Brexit will be delayed by a few months with the two sides eventually agreeing a free-trade deal, according to a Reuters poll.
The barrage of news this week over the progress of Brexit negotiations has sent derivative markets into a tailspin.
Overnight gauges of expected moves in the pound spiked on Tuesday to its highest levels last seen immediately after the Brexit referendum vote in June 2016.
However, gauges of expected volatility in the British currency showed tentative signs of settling on Wednesday.