The Chase Tower, New York © Kristen Cavanaugh, Flickr, reproduced under CC licensing

- Chances of Brexit being abandoned altogether have risen say analysts

- "No Brexit" at all is now the second most likely outcome of process.

- As Article 50 extension, possible 2nd referendum loom for UK voters.

Pound Sterling could rally by as much as five percent over coming weeks if Prime Minister Theresa May is able to get her Brexit proposals through parliament, according to analysts at J.P. Morgan.

Analysts at the Wall Street giant's London unit say there's now a 90% chance that either the Withdrawal Agreement will pass the House of Commons over the coming months or that there will be no Brexit at all, the bank says, which would be sure to generate further support for Sterling.

Sterling already entered the new week on its front foot as markets contemplate the supposedly increasing odds of a delay to the U.K.'s exit from the EU.

However, J.P. Morgan has gone a step further than many others in saying there is now a strong chance of the Brexit process being abandoned altogether.

No Brexit at all is now the second most likely outcome of the parliamentary process, with around a 40% probability of it being cancelled, although there's a larger 50% chance May's proposal is eventually approved by reluctant MPs.

"We had previously assigned the probability of 60:20:20 to an orderly Brexit, a no-deal Brexit, and no-Brexit, respectively, but revised this after the surprise ECJ ruling to 50:10:40," says Paul Meggyesi, head of currency strategy, in a note to clients. "Our central scenario is that GBP could rally by perhaps 3-5% assuming that parliament approves the withdrawal agreement, albeit this is unlikely to happen at the first time of asking."

Above: Pound-to-Dollar rate shown at daily intervals.

Members of parliament are widely expected to vote against Prime Minister Theresa May's Withdrawal Agreement in a vote schedule to take place in the House of Commons the evening of Tuesday, 15 January. Markets are already prepared for the outcome although they will watch the vote closely nonetheless because the scale of loss will be important.

Meggyesi says that if the PM loses by 100 votes or less markets could take heart from it as such a level of opposition might not be so insurmountable come a second attempt to get the legislation through parliament. However, he warns that anything more than 150 votes could sink the pact "irrevocably", which would surely be bad for Sterling in the short-term.

Those MPs who oppose leaving the EU claim May's agreement will lead to too significant a break with the bloc, while those who favour leaving allege it will hand even further control to Brussels and produce an exit in name only.

Most of both camps have pledged to vote against the deal but it is not known to what extent they are entrenched in their positions and so how easily some might change their minds.

"With less than three months until the end of the Article 50 process, there is thus a growing chance that UK political stalemate will necessitate an extension to the March deadline (EU approval is needed for this). In addition, the political pressure for a second referendum to resolve the standoff could well increase," says Meggyessi.

Meggyessi says opinion polls indicate a preference among voters for remaining in the European Union were a second referendum were to be held so if momentum for such a poll were to gather over the coming months Sterling would be sure to receive a sharp boost.

However, those polls also said before the 2016 referendum that the UK would vote to remain in the EU and it's clear that British exchange rates might see substantial volatility before such a vote were actually held.

Above: Pound-to-Dollar rate shown at weekly intervals.

J.P. Morgan's forecast is that the Pound-to-Dollar rate will recover to 1.34, from 1.28 Monday, before year-end and that the Pound-to-Euro rate will finish the year around its currenct level of 1.12.

The Pound-to-Dollar rate was quote 0.30% higher at 1.2869 Monday and is up 1.01% for the 2019 year-to-date, while the Pound-to-Euro rate was 0.16% higher at 1.1213 and has risen 0.87% since January 01.

Any failure by parliament to approve May's agreement will be seen by the market as making a 'no deal' Brexit more likely, because leaving the EU without any formal agreement is the default outcome established by the EU Withdrawal Act and Article 50 protocol in the Lisbon Treaty.

A 'no deal' outcome would see the UK default to doing business with EU countries on World Trade Organization (WTO) terms, which most analysts say would be bad for the economy and currency. Parliament has until ten minutes to midnight on March 29 in order to approve the agreement or an alternative.

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