The U.K. government narrowly avoided a vote of no confidence Wednesday following the defeat of Prime Minister Theresa May's Brexit deal.
Members of Parliament voted 325-306 against a vote of no confidence in Her Majesty's Government, which was called for Tuesday by Jeremy Corbyn, the leader of the opposition Labour Party. Mr. Corbyn called for the vote following a 432-202 defeat for a Brexit deal negotiated by Ms. May regarding the U.K.'s exit from the European Union.
The pound sterling rose 0.06% vs. the dollar over the day, to $1.2861. The FTSE All-Share fell 0.34% over the U.K. trading day Wednesday.
While the result prevents the opposition from forcing a snap election, money managers said the future for Brexit and the markets remains uncertain.
"While today's result prevents the Labour Party from forcing a snap election, the high-stakes political roller coaster is far from over," said Seema Shah, senior global investment strategist at Principal Global Investors, in a statement.
Conservative Party members fear a government led by Mr. Corbyn more than the Brexit options, she added. "Indeed, the threat of Jeremy Corbyn has achieved the impossible task of uniting the Conservative Party — at least for tonight."
Ms. Shah said the pound sterling might rally further as fears of Mr. Corbyn's leadership challenge recede, but that the question is how much further the currency could strengthen.
"Prior to the Brexit vote, sterling sat at around $1.50 against the U.S. dollar. As long as the possibility of "no Brexit at all" is alive, sterling could be drawn up in that direction. However, given the untold damage already inflicted on the economy by the uncertainty of the past two years, it is doubtful that sterling will get within touching distance of the $1.50 mark — even in the most optimistic case of Brexit being stopped entirely."
Ms. Shah added that, following the defeat of Ms. May's Brexit deal on Tuesday, more than a "few tweaks" will be necessary to get it passed.