The pound kept rising on Thursday as opposition MPs edged closer to blocking a no-deal Brexit next month and resisted the government’s push for a snap general election.
Sterling was up nearly 0.6% (GBPUSD=X) to higher than $1.23 by mid-afternoon, reaching its highest rate against the dollar in more than a month. It continued to rise after its best day against the dollar in more than five months on Wednesday.
It came after government supporters in the House of Lords said overnight they would stop trying to fight a bill by opposition MPs which could force prime minister Boris Johnson to ask the EU to delay Brexit.
Strategists at UBS Global Wealth Management said the pound could soar as high as $1.30 if Brexit is postponed until January 2020 and an election is delayed until after 31 October.
But fears of a general election before Brexit, which could still see such legislation overturned if Johnson won, could be capping sterling’s gains amid continued market fears of Britain crashing out without a deal.
Carolyn Fairbairn, director general of the Confederation of British Industry (CBI), called the potential delay a “chink of light”, but warned uncertainty was damaging the economy and firms were still diverting billions into no-deal planning.
"We now expect Britain to avoid a disastrous no-deal Brexit, but an election is looking like an increasing likelihood in the near-future," said Morten Lund, a currency strategist at Nordea Markets.
The Brexit delay bill has not yet been signed off by the House of Lords as the clock runs down until parliament’s suspension next week, but it is now expected to pass after the government dropped its opposition in the early hours of Thursday morning.
Britain’s planned exit date of 31 October is still hanging in the balance as a Downing Street spokesman suggested Johnson would not implement such legislation, and will keep demanding a general election.
Opposition parties have so far resisted calls to go to the polls until the law is passed, but Labour and the Liberal Democrats are now under pressure to vote through Johnson’s election plans.
Johnson is expected to call Labour leader Jeremy Corbyn’s current scepticism “a cowardly insult to democracy” on Thursday, but opposition parties may hold their nerve and agree to support a public vote only after 31 October.
The pound’s rally on Wednesday, when it rose by 1.2% against the dollar, made it a particularly volatile week for the currency, after it had sunk below $1.20 on Tuesday, a three-year low and second lowest rate since 1985.
“Markets perceived the likelihood of a no-deal exit to have fallen now that MPs have backed the principle of another extension,” said Jim Reid and other analysts in a note by Deutsche Bank.
He said the rally came in spite of poorer-than-expected figures on the health of the UK’s dominant services sector on Wednesday, with fears mounting of recession given similarly poor recent data on manufacturing and construction.