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The pound rebounded from its lowest level in 34 years during a highly volatile day of trading as MPs attempted to block a no-deal Brexit and Prime Minister Boris Johnson lost his majority.

The rising threat of a snap election dragged sterling below the symbolic $1.20 mark against the dollar earlier in the day, sliding as much as 1pc to a low of $1.1959. It was the currency's lowest level in more than three decades when the October 2016 “flash crash” is excluded.

It later clawed back its losses ahead of a crunch vote in Parliament following the defection of Conservative MP Philip Lee, rebounding briefly back to $1.21 as MPs debated a no-deal Brexit, before ending the day on $1.20.

Late in the evening, MPs voted to seize control of the Commons agenda in an effort to block a no-deal Brexit and force the Prime Minister to ask the EU for an extension. In response Mr Johnson said he would table a motion for an early election.

Traders braced for wild swings in sterling as analysts warned that the currency is vulnerable to more pain. ING currency strategist Petr Krpata argued the threat of a no-deal Brexit and early election is still “underpriced by the market”, warning that there is a risk of sterling falling further.

Moves on options markets signalled investors are bracing for the most volatile two months for the currency since the EU referendum.