The pound has endured a rollercoaster ride amid the deepening political crisis over Brexit.
Sterling was trading more than 1.3% lower versus the dollar on the day, at just below $ 1.27, as the clock ticked down to the so-called “meaningful vote” on Theresa May’s Withdrawal Agreement with the EU in the Commons.
The pound had started the trading day at $ 1.2863.
But it soon clawed back all of the day’s losses as the scale of the opposition to the PM’s deal among MPs became clear – Mrs May losing by a majority of 230 votes.
One analyst told Sky News that sterling’s recovery was down to a growing market expectation that the Brexit process would now be delayed to allow time for a way forward to be agreed.
Naeem Aslam, chief market analyst at Think Markets, said: “Sterling has taken a U-turn on the back of the vote because investors know that now Brexit isn’t going to happen in March.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, added: “Markets think a softer Brexit may start to take shape now the vote has failed, as parliament gains greater control of the process.”
Sterling’s performance against the euro was more muted as the single European currency was under pressure itself after the president of the European Central Bank admitted heightened fears for the bloc’s slowing economy.
The pound has been a barometer of the Brexit process for financial markets – falling from levels just above $ 1.50 in June 2016 when the UK voted to leave the EU.
It has fallen as low as $ 1.15 since – though that was largely the result of a trading blip – with the prospect of a softer, or no Brexit, supporting the currency’s recovery in more recent times.
It hit a seven-week high against the greenback on Monday but later lost ground as the scale of the defeat for Mrs May emerged.
The PM’s Brexit deal had been given qualified support by major business groups, who argued firms needed clarity on the Brexit issue.
Dr Adam Marshall, director general of the British Chambers of Commerce, said: “There are no more words to describe the frustration, impatience, and growing anger amongst business after two-and-a-half years on a high-stakes political rollercoaster ride that shows no sign of stopping.
“Basic questions on real-world operational issues remain unanswered, and firms now find themselves facing the unwelcome prospect of a messy and disorderly exit from the EU on March 29th.”
Miles Celic, the chief executive of TheCityUK, responded: “The outcome of today’s vote prolongs uncertainty and will continue to depress business confidence.
“The lack of clarity on the path to an orderly Brexit risks disruption and financial instability on both sides of the Channel.
“We urge the government and MPs to carefully consider the options without delay and put forward an economically sensible way ahead.
“A no-deal outcome is not in the best interests of customers in the UK or the EU.”