Sterling rose on Wednesday after U.K. lawmakers rejected leaving the European Union without a withdrawal agreement.
The pound was up 2 percent against the dollar at $1.3339 as investors become more optimistic that a hard Brexit would be ruled out. That’s the biggest move since April 2017.
“Our base view — and the currency is telling you this — is we will get some form of resolution,” said KKR’s global head of macro and asset allocation Henry McVey on CNBC’s Closing Bell. “Clearly, there’s been slowing related to Brexit. The way we’re approaching it is this is going to be a slow-growing economy [with] low inflation.”
The rejection of a no-deal Brexit, passed with 312 votes to 278, set up another vote Thursday on whether its official departure date should be extended. The result was widely expected as most members of Parliament want to avoid the economic uncertainty and trade disruptions that it could cause.
“Parliament has made it clear that unless there is a deal, they are not ready to leave the EU. Sterling traders are in love with this concept and this pushed the price of Sterling higher against the dollar,” Naeem Aslam, chief market analyst at Think Markets UK, said in a note.
Sterling extended its rally this year, posting its biggest gain since April 18, 2017 when the sterling gained 2.19 percent against the dollar.
Infamously known as a “cliff-edge” Brexit, a no-deal exit would mean the U.K. abruptly ceases to be a member of the EU overnight on March 29. It would mean there would be no 21-month transition period in place to gently prepare for life outside the bloc it has belonged to for 46 years. It would also have to rely on WTO trading rules.
The vote was seen as part of some concessions given to Parliament by Prime Minister Theresa May a few weeks ago and was only confirmed Tuesday when MPs resoundingly rejected her Brexit withdrawal agreement for a second time.
MPs will now vote again Thursday evening on whether to seek an extension to Article 50 (which oversees the departure process) thus extending the departure date beyond March 29. The EU would have to agree to this and the U.K. would have to give a good reason for requesting the delay.
— With reporting from CNBC’s Holly Ellyatt and Fred Imbert