The pound has rebounded after traders cheered the defeat of Boris Johnson in Parliament on Tuesday night as rebel MPs seek to block a no-deal Brexit.

Sterling jumped higher against the dollar and euro on Wednesday morning after Conservative rebels backed opposition parties to allow them to take control of business in the House in a bid to stop the UK crashing out of the EU without a deal.

The value of the pound rose 0.48% to 1.214 against the dollar while it jumped 0.35% to 1.105 against the euro.

It came after the pound slid to a three-year low of less than 1.20 on Tuesday as investors braced themselves for a turbulent day in Westminster.

On Wednesday, MPs will debate draft legislation put forward by a cross-party group which would require a delay to Brexit unless there was a deal or Parliament explicitly backed leaving the EU without one by October 19.

A vote on a general election could be held later in the day.

Market analysts have warned that although ruling out a no-deal Brexit would steady the pound, a snap election could also cause significant volatility in the currency.

Neil Wilson, chief market analyst at Markets.com, said: “The pound edged higher as Boris Johnson’s Brexit strategy appeared in disarray.

“The move higher only serves to underscore the kind of headline risk and volatility we can expect to see over the coming weeks which will make sterling a tough currency to trade.”

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said: “Johnson’s defeat gave a breather to the pound markets, although the game is not over yet for the GBP bears.

“Boris Johnson could announce a snap election by October 14 to seek support from British voters to get the Brexit done, with or without a deal.

“An election as early as next month could give another shake to the sterling, but even a tiny hope of preventing Johnson from crashing out of the EU without a deal could help the currency consolidating support near the 1.20 level against the US dollar and eventually recovering a part of the recent weakness.”

Sterling also benefited from rises in the Asian markets overnight, with the Hong Kong-based Hang Seng equity market rising 1.2% on the back of strong technology stocks.

Henry Saker-Clark is PA City Reporter.