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Sterling may be primed to drop after politicians failed to deliver the decisive Brexit vote that had been promised for the weekend. But currency analysts see the balance of risks shifting to favor a stronger pound in time due to a lower chance that the U.K. will crash out of the European Union without a divorce deal.

“The weekend’s events, if anything, further reduce the risk of disorderly exit,” said Adam Cole, Royal Bank of Canada’s chief currency strategist. “If there is a knee-jerk negative sterling reaction as we emerge from the weekend with a greater overhang of uncertainty than hoped,” it may be a buying opportunity, he said.

In other words, any setback in the pound may be limited when trading resumes at 7 p.m. London time Sunday, even after a surge of more than 5.5% against the dollar this month. Strategists at Toronto-Dominion Bank foresee a “relatively modest unwind,” and those at Credit Agricole are sticking to their view that the pound could reach $1.36 medium term.

Analysts remain bullish even as traders’ hopes for a resolution to the three-and-a-half year Brexit saga were dashed Saturday, when a verdict on Boris Johnson’s new divorce deal was deferred.

Instead, lawmakers supported an amendment put forward by former Conservative minister Oliver Letwin which requires the House of Commons to pass all necessary Brexit legislation before holding a formal vote on the Withdrawal Agreement. That meant the prime minister was legally bound to ask the EU for another extension to negotiations.

The pound has been the main sentiment barometer for Brexit since the 2016 referendum on EU membership. It strengthened for three straight weeks to $1.2984 as the potential for a deal emerged. A no-deal Brexit is seen as a negative for the currency as it would disrupt trade with the U.K.’s biggest partner.

The prime minister will introduce the legislation needed for an Oct. 31 exit this week and it’s possible he will garner enough support to push his deal through, according to a Bloomberg analysis.

“With all the legislation now put in place, a no-deal Brexit is off the table,” said Valentin Marinov, Credit Agricole’s head of Group-of-10 currency research. “Given that another vote on the Johnson deal could come as soon as Tuesday, investors could use any sterling dips as buying opportunity.”

European Council President Donald Tusk will now start consulting EU leaders on how to react to the U.K.’s request for another extension.

After the weekend developments, the pound is likely to slip to a $1.2850-$1.2920 range until there’s more clarity, according to TD Bank. But sterling could move sharply lower if Brussels were to formally reject a later deadline, according to Ned Rumpeltin, its European head of currency strategy. It may lurch lower toward $1.2835 and then further to $1.2750 “if the sense from the EU was one of growing rancor and impatience,” he said.

Still, Rumpeltin’s central view is one where the EU would grant an extension.

“The tail risk of an accidental no-deal crash out has also ratcheted down further,” he said. “Investors will have to balance the disappointment of a further delay with the increasing likelihood of eventual passage this week.”

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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