Pound to Euro exchange rate: Sterling responds strongly after Theresa May’s Brexit deal suffers huge defeat

The pound has responded strongly after Theresa May’s Brexit deal suffered a crushing defeat in the House of Commons.

Despite Mrs May losing by a huge 230 votes, sterling was up 0.08 per cent against the US dollar and almost 0.5 per cent against the euro.

The improvement against other currencies led to speculation from market analysts that the UK’s exit from the EU could possibly be thwarted.

After the vote, the pound was trading at 1.287 against the dollar and 1.122 against the euro.

Earlier today it had dropped down over 1 per cent versus the dollar and had shed 0.3 per cent against the euro.

Jeremy Stretch, of CIBC Capital Markets, said: "The probability of a no deal has diminished while the chances of a delay in Article 50, a second referendum or even, at the margin, no Brexit at all, have all increased.

"The consequence of those scenarios has encouraged sterling to rally despite the PM suffering the worst parliamentary result in a century."

Bloomberg reported that the reponse of the market suggested a belief that Brexit could now be derailed.

However Ned Rumpeltin, European head of FX strategy at Toronto-Dominion Bank, told the website: “While we have bounced since, we struggle to get excited about sterling’s upside here.

“We could see some market participants begin to think that the next move will be in favor of a ‘no Brexit’ outcome, but there is still a lot of blue water between here and there.”

Currency traders had been preparing for more volatility depending on the magnitude of Mrs May's humiliation.

City Index's Fiona Cincotta said she believed the pound could tank further.

She said: "Domestic political chaos, the prospect of a Labour government and on-going Brexit uncertainty would be a toxic combination for the pound, sending it back towards 1.20 US dollars and the post-Brexit-referendum lows.

"An extension of Article 50 seems almost inevitable at this stage. This would offer some support to the pound as investors see the risk of a no deal fading. How the pound moves thereafter depends not only on what Plan B is, but also Labour's reaction."

Neil Wilson, chief market analyst at Markets.com, said that whatever the outcome, traders should expect "considerable volatility" as news flow from Westminster dictates price action.