The pound rallied against both the dollar and the euro as traders mulled the chance that Britain could now more easily avoid a no-deal departure from the European Union on October 31, analysts said.
"Sterling bounced higher following the judgement, as pound traders once again reassess the probability of a no-deal Brexit being avoided," City Index Fiona Cincotta told AFP, adding "there is time to prevent a damaging disorderly Brexit."
House of Commons speaker John Bercow said parliament must "convene without delay", adding that he will consult party leaders as a matter of urgency.
Prime Minister Boris Johnson had insisted that the extended parliamentary recess was designed to allow time to bring forward a new legislative programme -- but critics accused him of trying to avoid lawmakers' scrutiny ahead of Brexit.
- What's next?' -
"The pound has moved higher in the initial response with the defeat for the government effectively preventing what would have been the setting of a dangerous precedent," said David Cheetham at XTB.
The 11 judges of the country's highest court were unanimous in their verdict, which they said meant parliament could now immediately reconvene.
Johnson, who took office on July 24, had advised Queen Elizabeth II as head of state to prorogue parliament.
He said after the ruling that he didn't like it but would go along with it.
Most members of the House of Commons oppose Johnson's threat to leave the European Union next month even if he has not agreed exit terms with Brussels.
"Traders are wondering: 'What is next for UK politics?'" said CMC Markets analyst David Madden. "A general election seems like the next move."
- Uncertainty the new normal -
"It's hard to see how this gets the UK and EU any closer to a deal that will be approved by MPs, but it does really deliver a massive blow to Boris Johnson," said Market.com analyst Neil Wilson.
"It's perhaps not fatal, but it's not going to make life any easier and we are now faced with significant uncertainty of a different hue.
"I would simply suggest that the uncertainty is the norm now -- we just have a different vector of uncertainty to contend with," Wilson said.
London's stock market bobbed into negative territory as sterling strengthened while Europe's other stock markets were steady to stronger.
In Asia earlier, equities crept higher Tuesday but dealers remained on edge following contrasting global economic data as investors await developments in the China-US trade standoff.
That prospect helped Wall Street to a stronger start.
- Key figures around 1330 GMT -
Pound/dollar: UP at $1.2478 from $1.2429 at 2100 GMT
Euro/pound: DOWN at 88.16 pence from 88.45 pence
Euro/dollar: UP at $1.1002 from $1.0993
Dollar/yen: UP at 107.67 yen from 107.55 yen
London - FTSE 100: DOWN 0.4 percent at 7,296.73 points
Frankfurt - DAX 30: FLAT at 12,346.13
Paris - CAC 40: UP 0.2 percent at 5,643.94
EURO STOXX 50: UP 0.1 percent at 3,541.95
New York - Dow: UP 0.4 percent at 27,060.44
Tokyo - Nikkei 225: UP 0.1 percent at 22,098.83 (close)
Hong Kong - Hang Seng: UP 0.2 percent at 26,281.00 (close)
Shanghai - Composite: UP 0.3 percent at 2,985.34 (close)
Brent North Sea crude: DOWN 63 cents at $63.11 per barrel
West Texas Intermediate: DOWN 48 cents at $58.15.