Industry commentators have said there is an increasing likelihood Article 50 will be extended beyond 29 March to allow more time for the UK to secure an orderly exit from the European Union.
On Tuesday evening, MPs voted on a number of proposed alternative motions to Prime Minister Theresa May's Brexit deal.
The House of Commons saw the majority rejected, however it voted in favour of ruling out a no-deal Brexit, with Caroline Spelman and Jack Dromey's amendment to the Withdrawal Agreement supported by a margin of 318 to 310.
The agreement, which is not legally binding, proposes to add the words "[Parliament] rejects the United Kingdom leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship" to Prime Minister Theresa May's final motion.
The House also passed Chairman of the 1922 Committee Graham Brady's amendment which seeks an "alternative" plan to the Irish backstop.
Sterling experienced a volatile evening. After falling 0.7% against the US dollar within 30 minutes of the defeat of MP Yvette Cooper's amendment, it has been rising against the greenback again to trade at $1.31 by mid-morning.
May is now set to return to Brussels in an attempt to renegotiate aspects of her deal before coming back to Parliament for further voting on 13 and 14 February.
In particular, the Prime Minister will attempt to re-open negotiations with the EU over the Northern Ireland backstop, claiming she will pursue a "significant and legally binding change" to the proposal.
However, in response to the outcome of last night's votes, a spokesman for European Council President Donald Tusk said the Irish backstop is "not open for re-negotiation" and that the EU continues "preparations for all outcomes, including a no-deal".
Commenting on last night's events, Janus Henderson portfolio manager Bethany Payne said May now faced an "impossible task" in securing concessions from the EU around the Northern Irish backstop.
This, she said, was because the EU is not going to accept a facilitated customs union and technological solutions as a viable option to avoid a hard border in Ireland.
"May must now return to Brussels on a wing and a prayer to renegotiate the Irish backstop," she said. "[The Brady victory] leaves the ball in the EU's court to choreograph a revised deal that would guarantee support in the House of Commons."
She added while a no-deal scenario remained unlikely, the current developments increased the risk of "accidently" leaving without a deal.
"An extension of Article 50, to allow time to pass legislation, also now seems increasingly likely," she said.
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