Prime Minister Theresa May‘s plan on how Britain should exit the European Union was overwhelmingly voted down in the House of Commons, which is the U.K.’s lower house of parliament. Though the move was widely expected, reports suggested it was the largest defeat for a sitting government in U.K. political history.
The British pound traded at $1.2841 on Wednesday morning at 11:00 a.m. HK/SIN, recovering from a sharp decline below $1.2740 overnight.
“Sterling rallied following the defeat of the withdrawal agreement due to strong cross-party support to prevent a no deal from occurring on 29 March,” analysts at ANZ Research wrote in a morning note.
The British government now has just three working days to map out a new plan of action. But the ANZ analysts noted it is “unlikely to achieve much, given the level of opposition to the withdrawal agreement, unless there is a U-turn from Brussels.” They added that gains in the pound is “limited by the prevailing uncertainty.”
Meanwhile, Steven Englander, global head of G10 foreign exchange research at Standard Chartered Bank, told CNBC that the pound is not hugely at risk as long as Britain is able to avoid a change of government and also a scenario where it exits the EU without a deal, which is defined as a hard Brexit.
“I think that the market is thinking that the risks of a hard Brexit have been greatly reduced,” he told CNBC’s “Squawk Box” Wednesday morning.
“I think if we end up with say what most in the market … expect now, and from comments in parliament, that we’ll have some sort of extension and then, possibly, a referendum, possibly an effort to cobble together a new deal. I think sterling could find a little bit of support,” Englander added.
Elsewhere, the dollar index, which measures the greenback against a basket of its peers, last traded at 96.009. The Japanese yen, considered a safe-haven asset, fetched 108.49 to the dollar while the Australian dollar traded at $0.7198.