Investing.com - In the aftermath of a parliamentary vote to reject the government’s deal on the U.K.'s exit from the European Union, Bank of England Governor Mark Carney said the rebound in the pound Wednesday morning suggests that markets believe the risk of a 'no-deal Brexit' has fallen.
Prime Minister Theresa May suffered a crushing defeat on Tuesday as the House of Commons rejected her Brexit deal by a margin of over 2 to 1. Opposition Labour Party leader Jeremy Corbyn called a vote of no confidence in May's government, to be held at 2:00 PM ET (19:00 GMT) on Wednesday.
Carney made clear that he was referring to the market’s interpretation of Tuesday’s vote and that it did not necessarily reflect his personal view.
"Public market commentary, consistent with our market intelligence, that (the rebound in the pound) appears to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished," Carney said.
He stated that he expects market volatility to continue and wouldn’t put much emphasis on short-term market moves.
Analysts postulate that the most likely scenario is an extension of the March 29 deadline when the UK is supposed to officially leave the EU.
“While the margin of May's loss was a surprise, the defeat itself was something the market had been pricing in for a long time and it appears that participants covered shorts in the pound after the vote,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“The market is now factoring in the March Brexit deadline being extended. In the longer run it may boil down to two scenarios - a no-deal Brexit or no Brexit at all.”
-- Reuters contributed to this report.