Sterling on Wednesday was headed for its biggest daily rise in 2019 as investors bet that British lawmakers would resoundingly vote against leaving the European Union in 16 days' time without a transition agreement. Britain's parliament was set to vote at 1900 GMT against the risk of a "no-deal" Brexit, 24 hours after a second defeat for Prime Minister Theresa May's divorce treaty left Britain heading into the unknown.
That would lead to a vote on Thursday on delaying Britain's EU departure, a move that could bolster the pound because investors say it would increase May's chances of securing a deal or even lead to Brexit being called off altogether if a second referendum is held.
The pound has swung wildly in the last 48 hours between $1.30 and $1.33 and the currency has at junctures been at its most volatile since the June 2016 Brexit referendum. "The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential," said Fawad Razaqzada, a market analyst at Forex.com.
Sterling's gains were spurred earlier by a BBC media report that Attorney General Geoffrey Cox had further legal advice which might help May win over lawmakers to her Brexit deal.
Market reaction to British finance minister Philip Hammond's Spring Statement was broadly muted despite a downgrade to the government's UK economic growth forecast for this year to 1.2 per cent, from an autumn forecast of 1.6 per cent.
In Wednesday evening's ballot May gave lawmakers in her party a free vote - meaning they do not have to vote according to party lines - and investors expect parliament to vote in large numbers against a no-deal Brexit - which most economists say would cause significant harm to the economy.
The pound at 1650 GMT was up 1.2 percent near the day's high of $1.3223. Sterling was up one percent versus the euro, hitting 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.
Gauges of expected market volatility in the British currency showed tentative signs of settling after briefly spiking to their highest levels this year on Tuesday.
One-month risk reversals on the pound, a gauge of investor expectations for a currency's direction used to hedge against expected moves, traded near their lowest levels since December 2018, indicating investors remained cautious in their outlook.
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.